the yarn store is called Purl and its on 137 Sullivan Street, New York NY. i don't know anything about knitting but i've been there a few times with my friend and it's absolutely adorable. Great, great selection and staff.
It's sister store is called Purl Patchwork and it's located down the block at 147 Sullivan. It's teensy and adorable and a great place to drop by if you want some fabric but feel overwhelmed by the Garment/Fashion District, as i often do. It's mostly for quilters though, so there's no tweed or houndstooth, etc.
their website is http://www.purlsoho.com