i shop thrift stores for wool all the time for wool projects- it does not have to be a merino sweater- men's wool suit coats, skirts, trousers...all felt wonderfully! i always check tags at thrift stores & yardsales...as long as it says 100% wool you can use it.
visit Sue Spargo's web site for inspiration & great ideas for using wools. also Seasport Hooking, Primative Gardens, the Cotton Patch Quilt Shoppe (in East Tawas, MI) many places are carrying patterns for felted wool applique projects---here's what i've been doing with mine lately...