I break things like this by limiting where it can be. In his case he may have it on the couch but no where else in the playroom or designate a corner - sort of out of the way kind of place and put a bin there for it. If he feels the need to have it he may go to his corner and have it but he may not have anything else with him as in toys. If he wants to play with the toys he needs to leave the blanket in the bin while he does and then go back to it later. It never goes outside or comes to the table for holding. It can be draped over the back of the chair or tied around his waist under the bib till he is broken of it.

When you do a game or song, bring child to join in and put blanket in the bin. Keep child moving for a few minutes and then let him escape to the security of his blanket corner. Ideally over time he will last longer and longer in group activities and get bored sitting and doing nothing while his friends have toys to play with.

Gradually substitute smaller and smaller pieces - ie a blanket ripped in half and then quartered - the small pieces can be tucked into a waistband or used as a bib so not a tripping hazard.

It is also up to the parents to realize the time has come to get rid of it during play and help out at home - especially with meals and outside play times.