Yes, it's yarn. It's just temporary until I can afford more fishy plants (the plants and caves are so expensive, especially with 5 fish!). lol I read about yarn "spawning mops" that some people make and figured if it's ok for little eggs, it should be ok for adult fish, right? They've had no issues with the yarn (love hiding in it actually) and are active and happy, VERY lively. No ill effects. I put the yarn in hot water like suggested for spawning mops before putting them in the tank.
In Sozin's pic, that big brown yarn thing is a cave I made for him from plastic canvas and yarn (I figured plastic canvas is ok too right? since you can make dividers with them). He really loved it but I had to take it out b/c I had to downgrade to a 1.5 gallon (and it didn't really fit) when I got the last two fish, for lack of space. I'm hoping to upgrade to bigger tanks in the future but for now, this is what they have and they are all incredibly happy. Frequent water changes, good food, live food when I can catch it. lol They're doing great. :3 And so much better than rotting in a Walmart cup.