Encore, a worsted weight yarn by Plymouth, is a favorite with many people because it's soft, well-priced and machine washable. It's made of 75% acrylic (for washability) and 25% wool (for durability and a nice feel). The colors are not especially exciting, but all the usual baby shades are there.
Knitaly is an imported superwash wool (machine washable, but best to dry it flat) in lovely colors.
Baby Ull by Dale of Norway ("Ull" means "wool") is also a superwash and the color range is great: pastels, brights and deep jewel tones.
BTW, there's no rule that says a baby blanket has to be pale color. Babies enjoy color and so do their parents. My personal baby blanket yarn is a cotton: Mission Falls 1824 Cotton (there is also a wool version). It has a wonderful texture and the color range is very sophisticated. Great for a striped or Log Cabin blanket. (See the baby blanket in Vogue On the Go Weekend Knits). When the baby is too old for a blankie, the parents can use it as a throw or afghan.