I don't have an inkjet, so I can't print out my labels. I use pigma pens. Sometimes I freehand it, and sometimes (and this looks a lot nicer) I trace a line drawing. I have a book of iron-on transfer labels that my mom got me for Christmas, but you are supposed to only use it on poly-cotton blends or the ink will fade. So I've been using my window as a light box and tracing the designs with a pigma pen, and it works great.
Also sometimes for text only labels I do format the label in Word, print it out, and trace, as described here:
http://www.quiltingboard.com/t-51054-1.htm