I used to knit/crochet /sew for a preemie group called Threads of Love in the South TX area-and they always needed blankets (18" square or so), hats and booties! The blankets can even be sewn from fleece, soft cotton knits, or flannels, too.
I second what River said about hats being the most needed, and the hat size-we were told to make them to fit an orange, and I would say thats accurate from my experience. The blankets are often called Kangaroo blankets and are used during times when Mama or Daddy are holding the baby for some skin to skin contact. This is extremely important for Baby's development (and parents too!).
Caron Simply Soft would be wonderful, and I'm sure any yarn (washable of course) that is very soft would be fine. Our group didn't seem to like cotton though. My guess is it doesn't stay as soft when washed up.
My daughter Grace was born at 23 wks/6days, weighed 1 lb 9 oz-she is doing great now at 3yrs. I know first hand how much these items mean to the parents of preemies! I recieved several items for her and I will treasure them always
I need to start doing that again too!