In my experience, no matter what you say or do, there will always be that one person who is offended. If you make the sign without malice in your heart, I believe that's enough. You can't control what other people think, say or do. I agree with GingerK that it's the same as the allergen warnings we find on foodstuffs. Cheerios has a new ad campaign advertising that their cereal is now gluten-free. As somebody who is not allergic to gluten, I don't find that the slightest bit offensive. I understand it's meant for the small number of people with Celiac disease or gluten allergies.
In regards to your first question, YES! I absolutely look for that sign (or will ask if I believe it was made in someone's home) that indicates it's from a pet-free, smoke-free home.
I sadly made the decision to find a new embroiderer after the one I found after a great deal of research met with me and I found out she allows her long-haired dog to rub up against stacks of finished work on the floor of her sewing studio. I used to assume that a business owner would at least keep his/her pet away from their work product, but I now realize pet lovers often like to have their pets in their sewing studios with them. My baby quilt clients worry about their grandbabies' potential reactions to smoke or pet dander. Parents don't know right away whether their newborn will be allergic to anything. My niece wasn't allowed to be allergy tested until she was 12 months old so they had to reduce as many possible allergens as they could & then try to figure it out by trial and error. Beyond that, with pets, kids can be allergic to certain breeds but not others. And cigarettes are filled with so many chemicals there are literally dozens of possible allergens packed in each one. So, yes, parents/grandparents often prefer pet/smoke-free quilts (and no wool, and dye/fragrance free detergent, and some even insist on only organic cotton) for their little ones.
If anyone raises an issue about them being from a pet-free home (I've yet to encounter that -- though sometimes people will recommend I get the same pet as them; or get some pet they heard is "hypoallergenic"), I'd just say that my quilts may be from a pet-free home, but they are all pet-friendly. I wouldn't advertise that in writing, but another quilter suggested I respond with that statement & it seems to work. The same 100% cotton fabric/batting/thread that make quilts kid-friendly and washable also make them pet-friendly and washable.
I think nearly all smokers realize there are some people who are sensitive or allergic to cigarette smoke. Your sign is not a judgement on their choice to smoke. If they take it that way, that's on them. I guarantee you anyone getting that upset over one line on a sign for homemade quilts was upset about something long before they saw your sign. Try to show compassion for them as people, but don't let their negative remarks discourage you.