Wool yarns sold as 'mothproofed' are made by adding Mitin FF (Sulcofuron-sodium), to the wool when it's dyed. According to the EPA fact sheet for Mitin FF, it has been shown to be a neurotoxin. Dermal (skin contact) studies have shown erythema and necrosis in test animals. It has also been shown to cause altered sleep time, ataxia, and diarrhea in oral studies on mice. The MSDS for this pesticide indicates it's harmful by ingestion or inhalation.
Though the consumption through yarn is minimal compared to working with the raw pesticide, you have to consider what effects working with and wearing yarns coated with even very low dose neurotoxins might have. And what about the people who are employed in making these yarns? How high is there exposure to bring us these yarns?
Because of the limited demand, there aren't very many mothproofed handknitting yarns available. In the hand knitting industry, mothproofed yarns are used mostly for items such as rugs. As an alternative, try regular wool or a hemp or cotton yarn.
If you do need a mothproof wool, consider the yarns produced by Brown Sheep Co, which are mothproofed with non-insecticide Ecolan CEA, a much safer alternative to Mitin FF.
The truth is, mothproofing your yarn isn't really necessary, so long as you just take proper steps to protect them from moths. If you suffer from the pestilence of moths in your area, consider the following approaches:
Keep yarn and finished knits stored in air tight containment, which will keep the moths from being able to access your goodies
Moths prefer dirty and moist clothing, so keeping your knits clean and dry is key. Don't store them in a damp environment and be sure that any airtight container is fully dry before sealing, so you don't trap moisture inside.
Clean areas where you store your knits regularly, to avoid creating dirty environments that might attract moths.
Dark areas tend to harbour more clothing moths than light areas, so try to keep your knits in a lighted area, or place a constant night light in the storage area.
If it's necessary to keep your knits exposed in an open area, such as laying on closet shelves or on hangers....move them around and inspect them regularly, to try to identify moth damage before it progresses too far.
There are a number of natural scents that are said to repel moths. Lavender, mint, cedar, clove and lilac are amongst the most popular. Try making little sachets to place with your knits and see what works. Even if they don't repel the moths, at least you'll have fresh smelling knitwear!