I agree, Caron Simply Soft is a great yarn. Also, Plymouth Encore Colorspun Worsted. These two yarns are not baby weight, or even dk weight.
I also like Elsebeth Lavold's Silky Wool. It is so soft, and knits up with such class. However, it is not machine washable. But I've found that more and more young mothers are willing to handwash a fine knit. They understand about the quality of certain fibers, etc...and appreciate them! Silky Wool has 192 yds per hank...and so a baby item wouldn't cost much!
Here is a pullover I made last year for a new baby at our church (a boy) using Silky Tweed:
And this one was knit with Silky Wool (same baby boy):
This one was for a different baby boy...and this is TLC Lustre, which I like just as much as Simply Soft:
Anyhoo, that's my 2 cents worth!