I have made 3 rag quilts with denim and I do not put anything at all in the middle of the blocks. I made twin sized quilts and they are incredibly heavy and warm. And take forever to dry.
I did not sew an Z across the blocks either. It is not necessary, as you do not have to hold anything in place.
I used 1 inch seam allowances on 2 of the 3.
There is no 'too small'. I went with the largest block I could reasonably get out the jeans I was working with. I opened the non flat felled seam. I cut blocks to incorporate the felled seam, pockets and other design features. I had squares cut out of plexiglass at the local glass shop.
I used 6 inch squares and 8 inch squares, these finished at 4 inches and 6 inches as I used 1 inch seam allowance.
You can use two sizes of squares in your quilt and intersperse some 4 patch blocks.
Stretch denim is harder to work with, but I had some funky colours in it and used it too.
2 of the quilts I sewed with the denim to the back, one with it to the front. The two with it to the back were meant to be picnic quilts, so they would be on the ground. The one with the denim to the front was a cuddle quilt, so it had the soft flannel on the body side.
Save your hands and buy spring loaded snips. After the first quilt I bought these and it was much easier to do the snipping. The snipping is messy.
When I washed to fluff up the seams, I used my top loading washer, prewash cycle (does not drain the machine) and used an old colander to scoop out the bits. It is amazing how much you can scoop out. If you are on septic, do not wash at home. Your septic system will thank you.