12 month update.
Well, I put my money where my mouth was and the year old daughter is now in undies during the day, with a nappy on for sleeping. We made the transition about three weeks ago, and it has been a fairly dry experience so far; some days she's completely dry all day and uses the potty/toilet. There have also been a few days where she's refused the potty or we've missed the opportunity and have had to change clothes several times. Thankfully all misses so far have only been wet, not poo--she's been consistent about pooing on the toilet in the morning for several months now. She can signal when she needs to potty by making the hand sign or by grunting loudly and insistently.
Of the muslin nappies, after being used and washed daily, those from the cotton tablecloths all started wearing thin and tearing holes. I mended a few to start with, but more holes kept appearing, so these eight have been retired. Those from the linen tablecloth and the cotton flannel receiving blankets are still intact and usable. Likewise, the terrycloth nappies--which were used daily with our older son for 15 months before moving on to the daughter--are looking somewhat ragged around the edges but are still in good enough condition to use. We finally stopped using the woollen wraps as the Snappi broke when the daughter was about 10 months (and because we were close to our deadline for the transition to undies I decided not to buy another). I experimented with pinning the wraps instead, but decided it was too time consuming for EC: I couldn't get the pins out quickly enough for pottying. So the woollen wraps were retired and we began using the PUL wraps which have Velcro tabs, with the pad fold as described previously. This is still what we use for bedtime.
This system has worked well for us, and has been very cheap; it was in fact free! The muslins are quick and easy to wash and dry--they are line dried weather permitting, or dried on indoor racks overnight; the terrycloth nappies also dry fairly quickly (especially compared to the prefolds we have) but the muslin ones really take very little time. I liked that everything was breathable and natural for baby's bottom, while still being dry enough for her outer clothing and bedding. A few times I had to change bedding after a particularly wet night, but only rarely (and again, only wet not poo). However, this was not just confined to the woollen wraps as it also happened once in a while with the PUL covers too--more a case of not wrapping thoroughtly/securely than a defect in the covers.