I have also been trying to find wool for applique. I have found quite a bit at thrift stores that I have felted myself but like others have posted most of it is darker colors. I have found some pink and light blue but good colors are limited. I am currently making the Baltimore Album BOM with wool but need a new source for colors. I am looking for Turquoise, yellow, orange, bright green. I will check out the sources posted on this link.
I have not tried dying wool - what kind of dye do you use? Is the process hard to do? I have found some natural colored sweaters so I could easiy dye those.