(I'm a knitter.)
Love PP's comment that life is too short for cheap yarn. For me, I just want my baby to have really nice fabrics all around them. Yes, I'm sure they'll have some acrylic in their lives, but why on their baby blanket.
Go for cotton/wool blends (a little acrylic is okay) or a superwash merino which is really wonderfully soft. If you can find a local yarn store (as opposed to JoAnn Fabrics or something), they can definitely direct you.
The yarn snob in me is knitting a blanket out of superwash merino Malabrigo ,which is a gorgeous kettle-dyed yarn. But also, there are some wonderful yarns like Cascade 220 superwash which is reasonable and knits up really nicely.