most home sewing machines are limited to a 5x7 hoop. a few higher end machines have larger hoops or you could purchase after market hoops that can expand the embroidery area.
here is a link to a lady that does custom quilt labels.
i don't think she'll care if you want to use it as a quilt label or as a quilt block. the only limitation with her will be the size hoops she has available.
http://www.oregonpatchworks.com/item...5841&pid=95305