This won't solve your 'setting' question, but there's a relatively new product from Lesley Riley called Transfer Artist Paper (or TAP for short). I haven't used it yet, but it's rocking the art quilt world because of it's versitility.
Not only can you transfer photos from an inkjet printer, but you can draw or color directly on it and iron the drawing directly to your fabric (or any number of other surfaces from paper to metal). It's supposed to be completely colorfast (even with bleach), non-cracking and does not change the hand of the fabric. It's not cheap, but JoAnn's now carries it so it'd be a good item for coupon use.
Lesley's website with TAP info:
http://www.lesleyriley.com/store.php?cat=2
More info and a couple of videos:
http://www.interweavestore.com/Quilt...sionThemeID=16