Why is the thread shredding at the needle?

Between 3 and 4

From my past sewing experience (not an industrial machine), the thread will shred if the needle/thread/fabric are incompatible. Could be the canvas is too coarse and is wearing on the thread like sandpaper. Remember, the thread/needle will penetrate over 10 times before that section of thread actually forms a stitch, so that's a lot of friction going on. In regular sewing, a top-stitch needle has a larger scarf which acts to protect the thread, however, not sure that is a choice for your machine.

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Is Pfaff 463 Suitable For Upholstery

Pfaff 463 Instruction Book

Unfortunately, your domestic machine was not made to sew leather. It can probably sew lighter weight leather with a lighter weight thread. Your thread is most likely too heavy for the machine you are using so it is not able to pick it up properly.

Joe, you might try a larger needle than you're using. You might also want to try a larger leather needle. You machine should take needles up to a size 18.

It sounds like the needle you're using is having a problem picking up the bobbin thread, and that might solve it.

Most likely, it has to do with incompatibility of the needle, thread, and fabric. The force of the needle penetrating the fabric multiple times is actually causing the thread to (wear &) fray and eventually break. There are needles with larger grooves that tend to protect the thread during stitching. Some may recommend a Top Stitch Needle (Home Machine Needles Superior Threads Why Topstitch? The Topstitch needle is the most common needle type used and recommended by professionals and educators. We recommend the Topstitch for piecing, quilting, embroidery, appliqu?, and construction. These needles are available in four sizes to accommodate all thread types, including metallic threads. The Topstitch needle has a larger eye and deeper groove. It is often referred as the MAGIC NEEDLE. It really does make a difference in your sewing experience.)
Why Use Topstitching Needle

Also, if the thread is a tight fit through the needle eye, it will also tear the thread. Make sure that the thread will slip easily through the eye. Go to a larger needle, instead of 90, try a 100.

Be sure to use a brand-new needle.

All About Needles

The Parts of Sewing Machine Needle

You may also consider changing the type of thread you are using. Go with a stronger thread, ie polyester, rather than cotton. Cotton will shred and break easier.

You will probably need to re-adjust the thread tension. If it is too tight, it will also break the thread. If you are using a heavier weight of thread, you will need to adjust both the upper and bobbin tension to accommodate the heavier thread.
Bobbin Tension How and Why Tension is Adjusted

If you sewing fabric that is sticky, ie vinyl, oilcloth, you should try to use a roller presser foot, a teflon presser foot, or a walking foot to help the fabric move with the feed dogs.

Sewing Heavy Fabric with NON Heavy Duty Sewing Machine SEWING IN GENERAL

Tips

Sewing through many thick layers of fabric Sactin

http://www.kollabora.com/q-a/sewing-denim-and-thick-fabric

14 Fantastic Sewing Tricks and Tips Making the World Cuter

How to Sew Upholstery DoItYourself com

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try changing the needle--just incase the needle tip is damaged
check for burrs in the thread guide area where the top thread runs
or even on the needle plate

indicates the needle hook timing is off and the hook is penetrating the thread instead of picking it up cleanly
make sure that the needle is in correctly with the thread groove facing the right way

I answered this a couple days ago but don't know if it went through. I can sew through 6 or more layers of denim with my 226, no problems at all. In my 30 years in the upholstery business I never had a problem sewing leather, vinyl, canvas or multi-layers of fabric. The 226 Consew, the 111W and 211w Singers I had presented zero problems with heavy fabrics - and I don't consider vinyl "heavy".

You need to first of all check threading. If the machine's threaded wrong you're break thread. Also you need to oil under the bobbin case and the bobbin hook and the rest of the parts as well.
Then, loosen thread tension on top by turning the knurled knob that's on the spring that's holding the tension discs. Also loosen bottom tension on the bobbin case by turning the small, left-most screw on the outside of the bobbin case counter-clockwise. Do both with the presser foot down. Pull the thread(s) out and feel the tension. You should be able to pull the threads out with some little effort. Tighten both a little at a time until you get some tension. Run a couple seams and check where the threads meet in the fabric. They should meet in the center. Also check stitch length. If you're using 92 thread (is should be left twist), you should run the machine at about 6 - 7 stitches/inch. I'm running my machine at 5 - 5 1/2 with #69 nylon bonded, and 6 - 6 1/2 with #11 mono.
One more thing; if tension's too loose at the bobbin or top, the machine will jam in the bobbin and thread will break.
Go to www.consew.com and download a pdf owner's manual for free. You need to click on the 224. That machine, the 225 and 226 are the same.

I too, have the same problem withmy Designer 1. I just bought ISACORD brand polyester embroidery thread to hopefully solve this problem, but I believe it must be a tension problem. I have a "date" with the repair lady on Friday (11/22/08) and if it gets repaired I will re-post what the problem was. Still love the machine WHEN IT SEWS!!