And you can look at patterns for knitted rugs, place mats, and the like. Felting will take away some of the scratchiness--there are lots of felted totes and slippers out there, as well as toys. And felted projects take up lots of yarn so you can justify replacing it with something luxurious and soft!:teehee:
But I agree--sometimes with washing the yarn may soften up. Make a few potholders and wash them in a wool wash. If they soften up, you'll know you can venture out to other things. If not, you have some clean potholders.