I used 2 skeins of Noro Kureyon that had been languishing in my stash, but I think handspun with some long, solid color repeats (like the handspun singles that I intended to use for this but couldn't find when I was ready to knit) would work equally well. In fact, I think I'd like it even better with shorter color runs than Kureyon, so that the colors would change from one block to the next, rather than from one section of the scarf or row of blocks to the next. I'm even thinking of spinning a yarn specifically for this pattern, after calculating the approximate yardage needed for each square.
Minor notes: As I said, this was inspired by the Garterlac Dishcloth (of which I knitted 2, but both are now rather filthy after a couple sinkfuls of dishes), but I modified it to use the bulkier Kureyon instead of kitchen cotton, and reduced the number of repeats to make it more scarf-sized in width. I tinkered with making the squares only 6 stitches wide, using 3 across on the foundation row instead of 2, but the color changes looked more muddled (rather than less, which is what I thought would happen...).
I also changed all the decreases from an SKP to an SSK, just because I like that decrease better.
Detailed version of my modifications can be found here at my LJ.