I have just been to Bali and had the same thought and went looking for fabrics. i have to say I was disappointed. We did go to Ubud which is the place to go for all the artsy stuff. Admittedly we were on a day trip but the brochure did say you can see batiks being made. At the 'factory' all they had was about 5 people of which 3 were hand painting silk and another 2 weaving which was interesting but i wanted to see bolts of fabric as in a real factory.
Then from there you went into a 2 storey place selling ready made items which were pricey but we bought a few things. The main reason I was disappointed was that there was only a small table with fabric rolled up in lengths which you could buy by the metre. The price wasnt bad, around $9 (australian) a metre but there was very little choice and I ended up buying 2 lots of fabric and both were 2 metres long. I was hoping for heaps of choice but maybe someone else knows exactly where to go so I can go next time and buy more.