It's a tough situation ... you don't want to upset your Dad, and I can appreciate this could go in different directions as to his reaction to how you handle the situation. Here's a different perspective than others have mentioned.........
You mentioned it was your Mom's quilt. While this may not be your Dad's style and you are replacing it with one more like him, the fact that it was your Mom's could be exactly why your Dad wants it repaired. To hold on to your Mom and his memories of her. Not fixing it may hurt him.
The pillow is a good idea as an option, though that too may still hurt his feelings as it is not whole. I've seen some old quilts using top stitching to put things back in place and hold down loose pieces. Or machine quilting with a large meander, to hold the shifting batting that we see in old ones, as well as catch the loose seams. Just some ideas for you to consider.
Good Luck ... and I hope you can do this so that Dad is happy with the end result.