Borealowl: So sorry to hear about your really bad experience. That's awful!
Do you think maybe they're sending a thank you note by snail mail? If not, I think I'd be tempted to e-mail them saying something to the effect of "If you don't plan to use the items I sent, please return them. I know of others who appreciate the hard work that goes into handmade items and will gladly use them."
Then I'd wait to see what they do. It might just jar them into a polite response--or they might send everything back in a hissy fit, but at least you'd get them back!
As for sending the blanket to them: No way! I'd donate it or give it to someone else!
As for making handmade items for other people, I wouldn't quit altogether (as mojo said), but I'd certainly be more selective about who got said item. In fact, I'd probably question the intended recipients closely and see if they appreciate handmade things.