http://www.joann.com/joann/catalog/p...PRODID=prd2992
This is inexpensive, can be purchased at Joann's (use a coupon) and works wonders. I wouldn't undo that quilt if it were mine. The quilt is as cute as can be and an applique would not hurt it, but this should fix it similarly to the mending stuff mentioned before, but a lot easier.
Have a good day, and don't stress over all our advice. :)