I don't know what to do at this point, but from your post it sounds like you might not know that it is okay to wash your flannel before using it in a quilt. It will still rag, but you will be able to address any bleeding and shrinking issues before the quilt is constructed. Good luck, and remember that a baby will not know or care that the flannel bled a bit. The quilt will be every bit as soft and warm and loved with or without the bleeding.