Congratulations!
I agree with those who have recommended Synthropol for the first wash. It will help catch excess dye much better than Color Catchers. Sometimes they will sell it at quilt shops or even at JAF or HL. Otherwise, I've bought it at Wal-Mart (I ordered it ahead to pick up at my local store).
Because I worry so much about little ones' sensitivities, I wash it again in plain water after the first wash with Synthropol. Then, I'll dry it.
Cotton does get damaged with heat, agitation and the wetting/de-wetting process. Better quality cottons will hold up better, but all cotton is damaged when exposed to one or more of those elements. That said, it's typically only a problem after hundreds of washes. I would not make a super intricate quilt for a newborn to use in a hospital. Quilt no farther apart than every 2" so it will hold up to frequent, aggressive laundering. Hospital washers & dryers get much hotter than domestic machines. A domestic machine -- unless it has a Sanitize cycle -- will not get hot enough to sanitize, which is why many people have stopped bothering to wash/dry on hot at home. If sanitizing the fabric is necessary & you don't have a Sanitize cycle, you want to boil the water to wash the isolette covers to make sure it's hot enough -- at least 160F for at least 10 minutes.
The other option to sanitize is Clorox (NOT with boiling water!) but I'd check with the hospital staff to ensure that's okay to use ... and then I'd still re-wash twice with just dye-free detergent before giving them to the babies.
Good luck with the quilting & congrats again on your sweet little grand babies!