Hi, I'm new here but just a personal observation that I made when I scrubbed my arms with tea tree oil, my skin literally melted off and I'm not the kind of person that picks or scratches at her skin! At first it looked like worms coming out of my skin, but then I noticed that it was my skin coming off! I did suffer a slight sunburn a few weeks ago so I think the skin was damaged a little to begin with and luckily, I've had success on my scalp and eyebrows with the tea tree oil so I feel like I may have a demodex problem! If I were you I would go a little easy on drier areas like the arms and legs with tea tree oil as I feel its too strong! about the cotton like fibers, I have those appear to but I feel like they may be from a towel or cotton ball or something. I clean my face every night with peroxide and I use cotton so maybe a strand of it has remained. I wonder if mites might build a nest with some fibers also and then kick them out when they are done with them?