Could you have said, "I will supply my own batting for the quilt?" And then use some batting or a blanket without holes.
Or even take the holey blanket as if you were going to use it, then throw it out at your house and replace with something better. It will be in the middle of the quilt so who would see it?
And could you replace the stained squares with some from your stash?
I think if I was in this position I might retire quietly from this group and find another group with different standards that are more in line with my standards.