I think it would be fine for toys. Toys are generally knit at a tighter gauge so the stuffing doesn't show so they would stay together fine.
I don't know about the other yarn, but some other not too expensive yarns that are good for toys might be Caron Simply Soft, Bernat Satin, Lion Brand Wool-Ease, or even Red Heart Super Saver. I find the latter hard to knit, but I have sensitive skin.
Really any washable, worsted weight yarn (unless pattern calls for another weight) would be fine for a toy IMO>