Thanks guys.
The cotton liner does touch the fly - the tent is not perfectly designed.
I was in LOTS of layers inside the sleeping bag, but the bag is fairly lightweight, and is water resistant but not waterproof. I recall when I was doing the shopping wondering why a lot of the bags had goretex outers, when you'd be using them inside a tent.
Live and learn.
I think I'll want a better bag before I go winter camping again. Or I might take Wolf's option.