I think the current size is good for a lap quilt. The idea of stitching 1/2" around the interior of the blocks would look nice, but you need to be aware of a couple of things. First, think about all the bulk of your quilt (top, batting & backing) if you use a regular foot or a walking foot you are going to have to turn the quilt at each corner of each block. Not familiar with your machine. How big is the harp area? That's a lot of manipulation of a bulky item. The other thing is you are going to have to tie off each square. If your machine has an automatic tie and cut feature you could use that, but some folks don't like the look of the knot on the back. The other alternative is to hand knot each start and stop and bury the threads. Neither one of these things are show stoppers, but you need to know what you are getting into. Most quilters are looking for continuous designs and, if you are using a straight line foot, no turns.
I think for your first quilt, stitching in the ditch top to bottom & side to side with black thread is going to be a better alternative. You can use flannel for the batting, make sure you wash & dry it a couple times so it doesn't shrink excessively. Warm and natural is a natural fiber so it will breathe. It can be quilted up to 10 inches apart, so your 8" blocks should be OK.