The formaldehyde is added for wrinkle resistance primarily, not insect control, though that is a side 'benefit' of it, as is the crisp feel that many give as the reason they do not pre-wash. Manufacturers work long and hard to create non-wrinkling fabrics so the odds of washing out the formaldehyde are really pretty slim...especially in clothing. Once it 'cures' and stops smelling, it's still there. More than you want to know about it can be found here.
http://oecotextiles.wordpress.com/20...-your-fabrics/
California has been posting warning signs for at least 4 years (probably way before that, but that's when it started showing up on quilting boards).