Need help making a T-shirt quilt - T-shirt and cotton squares

I need some help from you experts... this might be a litte long but I have to say it all so you know what I am trying to do.

I am not a newbie to sewing - been sewing since I was 10 and done everything htere is to do with a needle and thread. I loved applique quilting best.

So.. what I want to do is make a T-shirt quilt of the little t-shirts my grand daughters wore. One GD is 9 one is 3. I won't go into my first thought of how to do this as I couldn't make the measurements work, so what I have figured is this...

IF I make fabric blocks and then mount/applique the front of the shirt to the fabric block..... the front of the t-shirt is the part I am saving - some say something cute about them, others are just really pretty designs, but they wore the shirts and liked them. They each have one that says "Everyone loves a blue eyed girl" as they both have beautiful blue eyes so they wore them together.

So,, I cute the front of the t=shirt to fit on the middle of the fabric block. Now the fronts are different sizes as I have bee collecing them for a while now. So I would need to make probably 6x6 blocks for the small fronts and 12x12 for the larger ones and then make those 2 size blocks fit/quilted together. I can put 2, 6x6 on the side of each 12x12.

Now, any suggestions on...

I was thinking as I applique the shirt front to the fabric block to add little bit of gathered lace as I applique it - just for that frilly look and also to make a nicer edge than just a zigzag stitch... how do you think it'd look? or would it be to much? I know I have to interface block the back of the double knit t-shirts and I dont' want the block to thick.

THen what kinds of fabric is good for this kind of quilt? I know the 100% cotton is the best usually, but then it shrinks... how much does it shrink to the point it might mess up the quilt? I used to use a bed sheet to back my quilts and usually cotton or cotton/poly for the rest, but with the knit on top this time.. I hate working with knits in the first place.. would there be a difference? I know to pre-shrink the cotton first, and then iron it with spray startch to keep it neat and straight and all...would it be better with the knit if I made each 12x12 square - cut it into 2 triangle, sewed them to gether to make the 12x12 square adn then put the knit t-shirt piece on that so that the middle seam made for a more sturdy base for the knit? Keep things from stretching?
Or am I making mor eof this than necessary? It has been many years since I did quilt last, but it is something that doesn't leave you....just the specifics. Once I start I know I''l be able to do fine, it is the starting that is my proble.. and that always was. I could make the most beautiful dresses and things but hte hardest part that took the longest was putting colors and prints to gether!! Good grief, I created and completed the item in less time than it took me to put designs and colors together... so that is my hang up.

If you have any thoughts, comments or tips for quilting and using t-shirt knit as part of it all.. please share with me. My grand daughters and I thank you!