I have made a couple underquilts from sleeping bags - I found it easier to sew the bag first, then cut beside your line. You can bind it however you want afterwards, but this way you won't have to fuss with layers of fabric and insulation moving around at all.
Absolutely. Down or synthetic insulation, I would sew first, then cut away excess, leaving 2 or 3" to fold & sew the finished edge.
Hey John, I have an old Kelty down bag that I did exactly this too. Like you said though, I did not make it a wrap around but a true quilt. I sewed first on both ides of where I intended to cut and then cut between the seams. Minimized down going everywhere. I then finished the seams with binding tape. It trimmed 26 oz off a 3lb 5oz 15º bag.