Start by making a place for it such as the couch that he can go to to have it but no toys while there just the blanket and blanket can not leave the couch. The more he gets comfortable the more he will start leaving it there - in sight as needed, but not in hand. Then it moves to bed only.

I have a one year old with a soother and this bunny cloth thing he drags around and chews on and it drives me crazy. I have started letting him have them till nap and then during nap but after I put them up so he can have a snack and don't give them back (out of his eyesight) unless he gets absolultely beside himself. He is developmentally suffering I feel from them since he doesn't even babble with his mouth stufffed and can't play or hold on to stand or use two hands to cross the midline type of thing in play. I tell myself I am doing him a service.