Gecko- congrats on your up-coming blessed event. I don't know about the felt. but felted wool works really well for blanket stitch applique, you don't have to turn edges under at all, quick and easy.
If you are worried aboout bleeding, just pre-wash in hot water, that usually takes care of most dyes, except for the terrible red, which I happen to love.
Good luck and remember to have fun.