Let me first preface this post with this; I am not a yarn snob, though I play one for my friends. I truly believe in a knit and let knit philosophy, regardless of the teasing "Friends don't let friends knit acrylic," I give my wife.
As far as yarn goes, I only have two rules.
First, never knit acrylic for a baby. Acrylic is highly flammable, continues to burn after a flame is taken away, and melts for perfect adhesion to flesh. The chemicals used to treat acrylic to remove these properties are rather nasty, and anything you give a baby goes straight into it's mouth. There are plenty of other materials that are machine washable, so there are far better choices for baby clothing out there.
Second, knit what will make you happy. If your going to spend hours knitting a piece of clothing, than you should be happy with the material for your chosen project. You may need to save up longer for more expensive yarn, but if you'll be happier with the end product, I say buy the pricey stuff. If wool is too scratchy, or your allergic to it, then find something that feels right for you.
So, a few weeks ago my wife was offered a chance to buy a bag of fiber, she didn't really want it, but there wasn't much chance to think about it, and she bought it anyway. In the bag was a ball of yellow chenille yarn, it looks like it could have been around since the 70's, and it probably has been. Because she bought, she is instilled with a determination to use this yarn, and has tried to cast on at least twice. This is despite the fact that she doesn't like the color, and the yarn is so old and brittle that it continuously breaks while trying to knit with it.
Last night, she finally admitted that it just wasn't working. It's just too frustrating to try to knit. It's time to put old yeller down, and this dog won't be missed.