This is a very timely thread (forgive the pun!).
I love the look of the Highlights thread from Superior, and have several cones of it, but I ironed a little celtic design that I had stitched out with a Highlights thread today and unfortunately the iron was too hot and it melted the thread! So, if you are going to use the Highlights thread please make sure your iron is not at the hottest setting. I think Aurifil thread is beautiful and very lint-free and in a 40 weight it will be lovely in the blanket stitch. I also love the Superior Rainbows threads and they stitch beautifully in blanket stitch. Personally, I love heavier thread for raw edge applique but if you only have just the right colour in a 50 weight thread then perhaps you could do the blanket stitch that Ricky likes which is a double blanket stitch. It gives a beautiful smooth finish. He also uses contrasting colours to the applique which gives another dimension that I think I am going to try too.
After my little mishap today I decided that I am going to use cotton thread for my raw edge applique on this project. I wouldn't trust myself to remember to turn down the temperature on the iron.
Libby Lehman's 'Name That Stitch' episode this week is about blanket stitch if you haven't watched it. It might help.