There is nothing wrong with raw edge appliqué, IF you use a shorter and/or denser stitch to prevent complete and uncontrolled fraying. And most raw edge folks use something like Steam A Seam 2 under the piece to ensure that fraying is limited.
I love the look of a bit of fray around the edge of raw edge appliqué. It is folksy and charming, and kids love the soft texture of the edges. Orange peel would be adorable done this way!