I made that bunny using Velvetspun last month and I will never use that yarn again. I hated knitting with it (it has no stretch and it felt "sticky" to me). I didn't have too much trouble with it coming apart until it was time to weave in the ends.
I've heard that the bunny will look really cute in cotton. If I ever make one of those toys again, I will probably use cotton or a substitute soft baby yarn.