I clip the corners too when I wash. And I dry the big pieces of fabric separately because they do get wrinkly. I don't iron them though, I fold and smooth the best I can, I iron them when I'm ready to use them for a project because I'm usually cutting off sections of a piece, not using the entire piece.
And yes, they do use formaldehyde, as well as sizing, in fabrics. Fabric is generally stored in warehouses before shipping and the formaldehyde kills any bugs that eat their way through the storage material the fabric is wrapped in. Bugs loooooooooove fabric. It's also a great preservative.