I appliqué wool to cottons & flannels all the time. Appliqué the pillow first then put it together. You can ( birth) it, or use pretty much any method you want, just get your appliqué all stitched then use that piece as the front of the pillow. ( I'm not sure what you mean by envelope style)
ive never used fusible web products on my wool appliqué so have no idea how that factors in if you are using it- I use a blanket stitch to appliqué my pieces.