My Bernina 830 Record is the twin of yours - same year. They were the Lamborghini of sewing machines when new, and are still going for big bucks on eBay. I've had mine for about 8 years and use it a lot.
The #1 stitch, when you use a very short stitch length and about a 3 width, looks more like the blanket stitch to me than the #4, despite the illustration on the machine. (Maybe I never worked that out correctly!) The truth is I like to use the Elna Supermatic (even older, with removable cams) for blanket stitch on binding, but don't give up on the Bernina for applique until you've fiddled with stitch #1. It has a slightly rounded shape, that looks a bit like scallops going around, and I think it will look nice. It will be zigging to the left, which is okay for applique, but drives me nuts on binding because the entire quilt has to go through the throat of the machine. You'll definitely want to work it out on scraps prepared in the same way as the real thing. The 030 embroidery foot might be better to use, but the 0 foot should be okay.
One more thing: I hope you don't have to pull any of these tiny stitches, but it's not as impossible as it looks because you can rip the wider ones in the zig on the top, and then the little ones are not too bad to pull out on the underside - not fun at all, but not impossible. I know about this because I was crazy enough to decide I hated the binding I put on six place mats, and I have pulled all of it out. I mean I really, really hated it, and pulling it off was therapeutic.