One thought that I had about using flannel is the shrinkage - if it wasn't washed before it was turned into scraps it could shrink up something fierce after the quilt is done, and if the foundation doesn't shrink too you could have problems. I usually wash and dry flannel twice before I use it. Of course you can't do that with scraps.
It's also a good idea to use a bigger than usual seam allowance - I've had some 1/4" seam allowances in flannel shred and come apart (purchased at my LQS.
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