I would not cut the outfits apart. I think it would be hard (emotionally) for you to do, to actually cut into the material.
Next decide if you want to make a quilt out of knit fabrics, or more stable fabrics that are not stretchy. When I sew it does not work well to put knits with non-stretchy fabrics. You want one or the other.
When you choose one fabric type over the other, that should help you get rid of a bunch of the clothes.
Put two empty boxes in your youngest's closet. One is for absolutely MUST keep for the quilt. The other is donate/sell. I took my things to a resale shop. I did NOT go through and look for stains..... Take the whole box. Tell them you do not want anything back. What they do not want, tell them to donate. Have them mail you the check. Repeat each season. Clothes are gone. Same with toys. Keep ONLY the toys that your child adored, or will stand the test of time in storage.
I think part of the emotional attachment to baby clothes is the, "Oh my gosh I can't believe she was that tiny." How about you choose one of the first outfits and have it professional framed in a shadow box? Or really you could easily do that yourself, just mount on black foamboard (or pink...) and frame. Then hang in your child's room. In the photo box you could include a photo of your child in the outfit.
I think too that when we toss things we are afraid we will toss the memories too. Consider keeping a VERY simple journal. Write down stories, a sentence or two, unless YOU like to write. Put in pictures sometimes, or their little pictures.... Make it a super simple scrapbook, unless of course YOU love to scrapbook. Just write in their words for things, or a moment you want to remember and then you won't be afraid that you will forget all these little moments.