Okay....I am going to do all of the above.
I am going to try to convince my sister to let me use the yarn she picked out for something more suitable to it's weight.
I am going to knit up some swatches and see what I think it would be best used for and needle size. I've used it already for booties and a hat. Those projects won't behave and lay the same way as a blanket will.
And, I am going to consider weaving a tape/ribbon along the border to jazz it up.
My sister is fairly nostaglic and asked that I make something that would be heirloom quality. Since she picked out the yarn, I am a little stuck with it for now.
Thanks for all your help. Keep the ideas coming if you have more.