Toddler had blanket wrapped around her head while sleeping?

My daughter turned 2 in July. She sleeps with a couple teddies, a thin pillow, and a thick baby blanket that's always been her special night-night blankie. Tonight when I went in to check on her, she was sleeping in bed, and the blanket was wrapped around her entire head, including her face, and I had to really pull to get it untwisted. I'm not sure how she didn't wake up, as there's no way she could breathe in there, and now I'm scared to allow her to continue sleeping with it. Would she have woken up if she was suffocating? I thought it was safe to let kids sleep with blankets at this age.

This picture was a few months ago, but the blanket she was twisted up in.