There's a ton of chemical in fabric softener and dryer sheets - especially anything with a persistent scent (including regular laundry detergent). Those chemicals get absorbed through the skin. It's bad for anyone, but especially so for babies, who have thinner skin and less ability to filter it out. I use Tide Free for all my and my baby's laundry (and have a bottle of 7th Generation to try out soon). The baby gets no dryer sheets, and I sometimes use an unscented dryer sheet on my stuff.
Flame resistant, well, that's more chemicals and I don't like it, but I think by law all baby/child pj's have to be flame resistant if they don't fit really snugly. That means all blanket sleepers, etc. have the flame resistant chemicals and I don't think you can really get away from it. But I also don't think (but not sure - haven't done the research) that those chemicals are quite as bad.
My thinking is that if the baby's close enough to fire that his clothes need to be flame resistant, there are some serious problems going on anyway.