Honestly, I HATED burp cloths... They were WAY TOO SMALL. Then, a friend received some at a shower... One of the craftier ladies in her group had taken pre-fold diapers (Target, Wal-Mart, Babies R Us all sell them) and embroidered cute little baby designs on them. They were big enough, and super-absorbent (wonderful for those babies with a 3-cloth-a-day habit!)
Bibs are great, and Hobby Lobby sells some that can be machine embroidered.
Onesies are a staple of every baby wardrobe! Like someone else said, all stores that carry baby things carry them, and they're fairly inexpensive. Embroidered, they are a wonderful gift.
(I also do a fair amount of machine embroidery, and I love it!)