Lots of good info here (as always :-) ). Love the idea of trying to get her to do part of it.
Baby quilt size rags (flannel, I think) are $150 on one site on Etsy!
I like the accuquilt dye for rag quilts - never have too much trouble with the seams - and sooooo much better than having to make all those snips! I have used spring loaded snips too - now can't imagine making one without the accuquilt.
Also, if you use fleece (lots of color/print choices, soft and cuddly) you won't need batting and the snips curl really well. I don't like the lint of cutting and sewing fleece, but I do like the outcome.
If you want an 'ultimate' rag quilt - in my opinion - I just love the ones made with homespun. Just don't wash and dry it at home!!!
Big decision here.