Put the blanket back and see what happens; maybe they were truly loving it in that spot. If that takes care of the problem leaving the blanket is a simple fix.
Is your cat still using the litterbox? Often a urinary tract infection will have a cat relating his/her pain to "the box" and avoid it.
We have "Out! Pet Stain and Odor Remover" from Wal-Mart. It works the best for us (we tried different sprays when we were housetraining). My dear mil can't believe we have our furbabies inside because our home doesn't "smell". :)