Why not? You get to do something you love without risking any $$$. However, DO GET YOUR AGREEMENT IN WRITING because I'd hate to have you make all those lovely quilts, he sells them and keeps the $$$! It needs to be laid out very clearly how the sale price of the quilts is documented, how and when you get paid. You are entering into a business with this man and you need legal protections. I know it is tempting to take someone's word, but I would really hate to see you taken advantage of. I know you are on a fixed income, but you might want to invest in an hour with an attorney to make sure you are protected and will get paid a proper amount for the time and knowledge you are bringing to this project. Personally, I would prefer to have him pay me when he gets the quilt ($25/hour for your work is reasonable), then he can sell it for whatever and that $$$ is all his. Once the quilt is out of your possession, it may be difficult to get paid for it.
Also, I would agree that he can pay for the material, but you need to be with him to pick out the materials so you get quality materials and the right colors to make the quilt you want to make. I would make 1 or 2, see how they sell and then go on.