I have never had carpet fibers get into gears in 30 years of running on modules covered with carper (with and without grey carper for ballast). O-gauge track sits high enough to keep the gears separate from the carpet. I chose carpet over cork ballast and other alternatives because the carpet was quieter.
Snow batting, however, can be problematic when used on holiday layouts. I look for a dense, almost felt, batting at my local craft store, usually on sale before Thanksgiving, stretch it tight and staple it in place. When drilling and screwing track, the stuff wants to wrap around the drill bit or track screw. I cut slits prior to drilling. Heavy pressure on the tie usually lets the track screw go in.
Fluffy show batting is evil if it gets near running gear. I use that stuff only on mountains and areas clear of track.
+1 on Velcro to fix stuff to carpet.
