I bought some flannel the other day and measured prior to. After washing it only shrunk about 1/2" total. BUT I have never had flannel pill like this did. Feel like I'm going to have to take the clippers to it. oh well.

As written above. make sure your flannel has shrunk as much as it will. Quilting is to keep the fabric and the backing together as one unit. I would quilt a little closer than 8".

I would wash and dry the quilt in a dryer before gifting it. Minky doesn't shrink at all (poly), flannel usually shrinks quite a bit and cottons all shrink differently too. You may end up with lots of crinkle in the Minky with less on the cotton. This is one of the reasons I prefer to work with fabrics that have been washed. Please take pictures of the quilt after it is washed and show us the results.