Welcome to the fun (& sometimes frustrating :) ) world of quilting.
You can buy fabric wherever it makes you happy. WalMart, JoAnn's, or your LQS. It all works, so do whatever is right for you & your budget :)
My favorite online fabric store is Thousands of Bolts.
http://www.thousandsofbolts.com/
No idea where to buy thread online; I just usually purchase at JoAnn's & yes it's a tad pricey.