Start with a bath towel (full size) and washcloth:
Fold the washcloth in half, right sides together (and if you were Todd, you would ask me - washcloths have right and wrong sides? To me they do - at the endges where they are finished - the nicer edge is the right side, the thicker edge is the wrong side - my OCD is coming out here - hehe). Sew up 1/2" to 3/4" to one side of the center (from long edge to long edge).
Cut the smaller of the 2 halves off (in this case, I cut off the side of the washcloth that had the tag on it). Zigzag the edge you just sewed.
Turn "hood" right side out (so seam is to the inside of the hood). It helps to visualize it if you plan on the seam being on top of the baby's head, the bottom edge in this picture is what you will sew to the towel. The opening for baby's face to look out is to the left.
Find the middle of one of the long edges of the towel. Pin the washcloth to the towel. I always pin the edge of the washcloth that has no seam in it. I like the seam on the top of where baby's head will be (because if you were a baby, would you like that seam running up the back of your head?)
Sew the washcloth to the towel. Then go back and zig zag the edge.
And voila - you have a hooded towel. It's a full size bath towel, not one of the rinky dink hooded towels you buy in the store. Plenty of coverage for the wee little ones. And, if you are Tyler, you still use your hooded towel when you are 5 1/2. And, while I don't like shopping in Wal-mart, I paid $3.50 for the towl and $2.00 for the washcloth today. Sometimes you can get them even cheaper.
**On Tyler's towel - there were decorative bands around the towel - you can sew ribbon around the edges of the towel. Just DON'T use ribbon with wire in the edges. Trust me. You'll be cursing up a storm as you pull bits of wire out of the ribbon after you wash it the first time... and the 100th time....and 3 years later if you didn't get all the wire out from the first go round. It's not pretty.
Then, of course, you need to make a burp cloth for said baby:
Take a cloth diaper:
Sew 2 ribbons (or in this case, 2 pieces of fabric) up each seam on the diaper. Get as frilly or as cute as you want.
For this one, I took a strip of fabric 2 1/2" wide, ironed it in half, wrong sides together lengthwise. Opened it back up and folded each edge to the center and ironed it so there were no exposed raw edges. Sew it to the diaper around all sides.
And - voila - you have a burp cloth for the wee little one (excuse the pins in this one - this picture came out better than the finished one).
You can put lace under your fabric, lacy ribbon, plain ribbon - get as creative as you like. Ribbon is cheap - and 1 package of cloth diapers goes a long way as you are making burp cloths.
Hope this helps give you all some great ideas for inexpensive, very nice baby shower/new baby gifts. If you have any questions, I'll answer them in the comments for everyone to see. If you make one of these - let me know - I would love to see them!!