Thanks for that, StillSquiffy, I did as you suggested (partly because I bought my grandson a similar fleece!) and found this:
"Sheepskin bedding and the sudden infant death syndrome. New Zealand Cot Death Study Group.
Mitchell EA, Thompson JM, Ford RP, Taylor BJ.
Department of Paediatrics, University of Auckland, New Zealand.
We carried out a nationwide case-control study, comparing 393 case patients with sudden infant death syndrome (SIDS) with 1592 control subjects, in order to examine sheepskin bedding as a risk factor. Sheepskin use was similar for case patients and control subjects (both, 42%; adjusted odds ratio [OR] = 1.28; 95% CI = 0.92, 1.79). Sheepskin use among the control subjects was associated with socioeconomic advantage. The relative risk for SIDS with sheepskin use was significantly increased in the infants placed prone to sleep (adjusted OR = 1.70; 95% CI = 1.08, 2.67), but not for infants placed in the supine or lateral position (adjusted OR = 0.82; 95% CI = 0.45, 1.48). An interaction between sheepskin use and bed sharing was also found. Sheepskin use was associated with a decreased risk of SIDS among infants sharing beds (adjusted OR = 0.61; 95% CI = 0.38, 0.99), but an increased risk among infants not bed sharing (adjusted OR = 2.25; 95% CI = 1.32, 3.86). We conclude that if an infant needs to be placed prone to sleep for medical reasons, a sheepskin should not be used as underbedding. However, for infants placed supine to sleep, sheepskins are not associated with an increased risk of SIDS."
(My bold).
So, back to sleep, then.
(I saw stuff about arsenic and dangerous gasses too, but I'm fairly sure those concerns were addressed at the time, and the link seems suitably academic.)