I have hand quilted quite a few flannel quilts. The tops were pieced, polyester batting and flannel for the backing. I have not had the problems that you are having. My stitched aren't quite as small as with regular cotton but I have been able to do regular stitching. In fact I am doing a baby quilt all in flannel right now and it needles like going through butter. I use a number 10 needle and hand quilting thread.