My inventory wasn’t full, and it didn’t fall on the ground. That said, is there a chance of using up yarn but *not* succeeding in knitting something? If so, that would make sense. If not, it’s probably still a bug. 😛
using up yarn happens when you select the piece and then press knit. Then you still have to hold down action until you get a success. For Friar’s Robe you would need to not fail at 5 checks in a row. That will not work on your first try but you will get xp and eventually it will always get made.
I have not yet knitted a piece and not received and I have knitted several items already.