I had a skein of nubbly yarn that I just didn't know what to do with; a friend used it to knit a dog coat -- and in the knitting, you could hardly tell it was nubbly yarn at all. As I recall (they are travelling now), the coat was mostly stockinette with a seed stitch border, for a small dog (he's a mini-dachsund).
If you want to accent the nubblies in use, the purl-side of knitting tends to be where the bumps show up the most, rather than the knit side.
If you decide you _really_ dislike the yarn, you could cut it into little bits and card it into something else -- oh yeah, you are so head-over-heels into spinning that you already have a drum carder, right? Well, dog slickers or handcards will work too ... but that is called "garnetting" the yarn, and the resulting "re-spun" blend will be highly textured.
Which brings to mind -- the 100% virgin wool on sweater labels -- it means the wool is "fresh from the sheep". If your wool sweater doesn't say that, it may be made from yarn that was the result of (granted, very thorough!) garnetting.
(posted by me on LJ\spinningfiber this day)
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