Wool Felt
Always use good quality felt, either the rayon/wool blends or 100% wool. The acrylic felt squares that you see at the stores are just not worth it, not only do they look horrible (you'll know what I mean when you compare the two) but they pull apart way too easily which is NOT good for sewing, especially not for collectables which you will keep for years.
Good wool and rayon/wool felt has a strength and a depth that is just awesome. You can make fabulous stuff out of it, stuff that can last for years, and it's fun and easy to work with. And it doesn't fray like regular fabric. Unfortunately my local fabric stores don't carry the full variety of colors (120 colors in the brand I usually use), but there are many places online including on Etsy.
Something else to look at if you can find them is hand dyed wool felt. You might be able to find a local provider, if not again look online. Some amazing varigated felts are to be found out there.
Tulle
Yes, this is the stuff tutus are made of. A shimmering delection with lots of body that never frays. I often use this as an overlay over felt. Just a simple layer and less than 50¢ and already your project looks richer and more enticing. Another plus is that it can take the sometimes itchy wool just a little bit farther from your skin. And, did I say no fraying?
Fleece
An often overlooked fabric, that seems to be bought exclusively for baby blankets. Not as inexpensive as I'd like, but you can often buy it on sale. Soft and warm, I've found it great for coats, vests, pants and hats that are perfect for autumn (or in California dead winter). And another nonfraying fabric. The only negative really is that I dislike so many of the colors and pattens it comes in, but with a bit of time I usually overcome.
Brocades and Jacquards
Beautiful (often expensive) fabrics, with amazing colors and designs. The only problem I find with these is that they snag easily. And yes these definitely fray.
