That's a really pretty baby blanket. What I finally got my mind wrapped around first about yarn and needle sizes is that fat yarn takes fat needles, skinny yarn takes skinny needles. What the others said is great. I'd just add that fortunately a blanket isn't as gauge-critical as a garment that needs to fit so you should be able to get close enough pretty easily and use the yarn you have. If you need to adjust the number of repeats or something, there will be help here so be sure to ask. Enjoy!
Happiness is catching that dropped stitch while it's still fixable..