Is there a reason to NOT use milk chocolate morsels rather than semi sweet?..Also, Is it a bad idea to lay fondant over a ganache poured cake?

No, you can use any flavor chocolate you want. I've used bittersweet, dark, and semi. I've never used milk chocolate but I don't see why you couldn't if that's the flavor you're looking for.

I've never used fondant over ganache so I can't help you on that question but hopefully someone else will see this and know if you can or not.

HTH