I agree with Piney - no rag quilts for babies... But, I've done several rag quilts. Yes, you cut the batting smaller than the rest based on the seam size you're using. You don't want that white batting showing in the rag part. You can embroider each square but that will get pretty busy. You can do the "X's" fairly quickly on some and embroider on some. You wouldn't need any batting or cross stitching if you use flannel or even an old blanket as the filling. The X is strictly to keep the batting flat during washings. Hope that helps.