I have had a home base business for many years and I have deducted my office legitimately without any audits because I am honest about what expenses are actually for the business. If you share the space with some other activity then only a portion would be allowed.
In the quilting example that started this topic...I think you could not write off all the fabric, supplies etc. because only some of them are made to sell. The ones donated, given to family, etc...could not qualify for any deduction...ie: if only 20% of your quilts are sold then you could only deduct 20% of your home studio, fabric, etc. I am not an accountant, so this is only my understanding of the tax laws.