This tutorial by Lee Meredith was extremely helpful. I made a few mistakes trying to rip the seams, by accidently cutting through the main sections of yarn, but oh well - the result was that I ended up with about 8 various size balls of yarn rather than 4 or so larger balls.
I'm still not really sure how the yarn will turn out - the washing didn't seem to remove all of the kinks and it may actually be too felted to knit with (how to tell? - if I managed to unravel it does this mean it's ok?). And I'm actually not too fond of the colour(!), BUT, it has been an interesting process. A bit of work, but not really that hard, and so from now on I will certainly be keeping an eye out for good yarn I can salvage.
TwiceShearedSheep have obviously mastered the technique and have lots of recycled yarn for sale in their etsy shop... maybe one day I'll have my own etsy store(!)
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