Good question. I am getting ready to do a dozen dipers for a greatgreat nephew that is due next month.
I have embroidered several dozen of these diapers. I always pre-wash them and then iron. I don't want them to shrink after I've embroidered them. If you are going to do an applique, be sure to pre-wash the fabrics to be appliqued also. I never use a stabilizer on them. They have all come out perfect!!