I think you have the right idea. I would cut pieces to the size of the worn ones and applique them in place. I would make a freezer paper or plastic template. Add a seam allowance around it when you cut out the fabric and iron the edges under. I frequently use flannel in my quilts and don't have any problems with it, so don't let it scare you. Just treat it like any cotton fabric. Wash it first, iron it, use starch won't if you want, glue the edges if that works for you. Your friend will be so happy and surely not examine your work. One thing I would not do with out asking him first would be to make him a new quilt instead. He may find the feel of that quilt to be very comfortable or he may have sentimental attachments, who knows. You are a very nice neighbor to do this for him!