I purchased some 1/8" birch plywood from amazon.com - my coworker Wayne said this cuts better than the previous wood I used - less scorching. This didn't eliminate all of the scorching, though. In this picture, you can see a heddle before sanding, and one that has been sanded.
With the smaller heddle, the holes are also slightly smaller. Today, I plan to play with them and do some weaving to get a feel for which size I prefer. I'll be sure to post my results. I also think I'll spray them with some Clear Wood Finish to protect the wood. I'm not sure if that is necessary, but the wood does feel pretty "soft", so I think that will strengthen them.
(These pictures were taken with my iPhone. I obviously still need some practice with focusing. Or maybe I should go back to using my point and shoot camera.)