I am a big fan of frogging. I frog stuff all the time... that's why my list of completed projects is so short.
My theory is that whatever the mistake is, I'm always going to know it's there and I might not wear or use something with a mistake (I think I am in the minority on this topic... most knitters hate to frog and avoid it at all costs).
I'm sure the baby won't mind a tiny knot in the blanket. If youhave to add new yarn in the middle of a row, you could tie a knot temporarily and then untie and weave the ends in later.
As for the "pre-fab" knots, I would write the company and complain.... and you never know maybe you'll find out it was a bad batch or something, and get lots of free stuff!!! :-D I think mid-skein/ball knots are a bit more acceptable in handspun yarns... plus if it's natural fiber it's easy to get around them: I just break the yarn, break off the knot, and then spit-splice the two ends together... no weaving, no knots... this makes the "join" invisible and eliminates waste from having to join at the beginning of rows AND knots or bumps. But you can't spit-splice with cotton yarn
But now that you know you got a knotty bunch of yarn, you can be on the lookout for more knots as you're pulling from the ball... if you see one coming, try to finish the row, cut out the knotty section and start the next row with knot-free yarn. You'll probablly have lots more ends to weave in that way, though.... or try the temporary knot in the middle of a row if you need to. Good luck!