There are so many wonderful baby yarns out there. Bernat and Red Heart have some of the best. Lion Brand and Premier make some of the softest, however, they are a tad bit more expensive than Red Heart.
Since the best baby yarns are acrylic for the robust ability to hold up to many washings. But there are some very nice acrylics out there now that aren't hideously ugly. Bernat makes those huge skeins for making baby blankets, with enough left over for a hat, sweater and booties.