I agree that the blocks look like a Baltimore Album type quilt, although those are not usually done in flannel. I would not use dark sashing. It will draw the eye and take it away from the motifs. If any color I'd go with red, as that's more traditional, but a lot of BAQ don't have sashing. If you have matching fabric cut into alternate blocks, you could cut that into sashing to separate the blocks if you feel they are too busy when set directly together. I'd set them straight, as you don't see a lot of BAQ quilts set diagonally. There's nothing that says you need to go with what's traditionally done though!
You thought they seemed like the wool applique method. Are they raw edge applique? Or are the edges turned under? From the pictures, it looks like the edges are turned under-- but if they are raw, then I'd divide the blocks and use them to make smaller wall hangings. If turned under and the stitching looks sturdy, then I'd make them into a bed quilt or two. Think about washing, and repeated washing. Sometimes items that are embroidered are nicer to put on the wall where the embroidery doesn't wear out so quickly.
Please remember to check the pins, and make sure they are not rusting in the fabric.
Lovely work! Your grandma is a talented lady. I wish my UFOs will be half that nice!