I believe that the thread sold by Sparkfun is made by ShieldEx. According to the material safety data sheet for the silver-coated thread:
Eye Protection: SHIELDEX® silver
coated non-woven/or/woven nylon fabric
and yarns does not cause significant
eye irritation or eye toxicity
requiring special protection. Use good
industrial practice to avoid eye
contact.
Skin Protection: SHIELDEX®
silver-coated non-woven/or/woven nylon
fabric and yarns does not present a
significant skin concern requiring
special protection.
Comprehensive review of other conductive threads
As this is only your second time working with electronics, I'll try to keep my terminology simple.
It's hard to see exactly how you have wired up the sensor and LED, but I can take a guess. (If I'm wrong, then everything below probably makes no sense).
The sensor is connected between + power and the Arduino input, while the LED is connected between - power and the Arduino input.
When you press the sensor, electrical current can flow from the + side of the power the Arduino sensor pin, charging it up and giving it a high voltage. Current also flows through the LED, causing it to light up.
Now, what happens When you release the sensor? The electrical charge inside the Arduino sensor pin which was giving it a high voltage, will now flow as current through the LED to - power, bringing the voltage down, so that the Arduino sees you've let go.
But what happens if you don't have an LED in there? The electrical charge in the Arduino sensor pin has nowhere to go, and so it just stays there, and the voltage doesn't change.
The reason the Arduino's sensor pin behaves like this is because it behaves like a tiny capacitor. It can store a small amount of electrical charge, and thus 'remember' the voltage that was placed on them by the sensor.
So, how can you fix it? You'll need to have somewhere for this charge to flow. If not an LED, then a resistor should do. Any value between 1k and 1000k will probably work fine.
Best Answer
If you put the thread across the terminals of a meter measuring resistance, no matter where you touch the thread there should be a small change in resistance but, unfortunately, that resistance change would be the same throughout the length of the thread - this on its own prevents you from achieving what I believe you want.
However, if you have two threads very close to each other but not touching you should be able to roughly transfer the voltage at the contact point to the 2nd thread. In effect, the 2nd thread becomes the wiper of the potentiometer but feed that 2nd thread into a high impedance amplifier or the DC voltage that your skin transfers will be severely diminished.
Alternatively use an AC signal across the 1st thread and therefore transfer the ac signal to the "wiper" thread - this will be more reliable I suspect.