Rhoda,
What sort of sheath you thinking of making?
For leather you need something with a good thickness - say 3 mm. Remember to cut of a wedge of leather to go down the inside when it is stitched - this wedge sitting between the two flaps and is there so the drawn knife wont slice into the top stitches.
Barbour do a good wax linen thread - which I use alot. But you can also get artificial sinew (never tried it though) at a push dental floss will serve.
Top tricks with stitching leather,
1. Dampen the leather to make it soft and pliable.
2. Make you holes in advance and line all three peices of leather up before starting work.
4. Evo-stick will tack the leather together while you stitch and not set until long after you finish - but it helps to bind the edges.
5. Use the double needle technique as per Mocassins and this way you get a much stronger stitch plus you can pull the edges together tighter.
Finally remember to cut the leather to the size of your knife but I always add a few mm as experience has shown me I'm always erring on the small size.
Good luck - lets see the finished peices!!