http://www.walmart.com/ip/Brother-PE...roduct+Reviews
This is the cheap Brother machine. $258. I want to do that quilt, too, for my DH, a big HP fan. I'm having the same quandary you are. I bought one of the first embroidery machines years ago when my kids were little and never mastered how to use it. However, it appears that they are easier to use now. I actually want the PE-770 for $600, but not sure about spending that much for something I'm not sure I will use. So I have been really thinking about this machine. As far as doing the embroidery by hand, that is how she did the original quilt. It looks doable, but I love the one I saw posted on here with all the fancy machine embroidery for the book titles.
P-BurgKay would love to see your quilt done with fabric pens. Never thought of doing it that way. How well has it washed?
For stabilizer, I've read that coffee filters work well. Never have tried it myself. You would need a spool of bobin thread and a spool of each color you want to use. Whatever machine you decide on will come with one or more fonts to do the labels with. If you want more than those fonts, you will need software to do your titles. There are so many options out there for software. You could spend $20-$1000 for software. If you have EQ7 you can get EQStitch to do your fonts and more.