1. Yes, but I would prewash the flannel so that it will shrink the second time with the cotton. don't prewash the cotton.
2. 1/2" to 1" seams would work for the rag quilt, I like to use a very narrow zig zag stitch on the seams. Clip up to an 1/8" of the seam line.
3. Nothing at all wrong with wrapping around the batting, using a decorative stitch to sew it down, very pretty accent.
4. Check out the poly battings, they may be your best bet for tying wider areas. Each company/type has different requirements :wink: