First of all, I'm sorry about the bad news! This must be a very difficult time for you and your husband and your family.
As for yarn-- yes, not only is the scalp more sensitive because of the hair loss, but apparently there is something about losing it all at once which makes it even more so. I, too, have heard the no-wool rule. I think the very, very best yarn for chemo caps is Lion Brand's Microspun. I made a couple for a cousin and she said it was fantastic. It's unbelievably soft knit up-- a little splitty, but once you get used to it you should be fine.