I pre-wash. If i'm going to use the fabric right away, I take it out of the washer and dunk it into a50-50 mixture of StaFlo and water, then dry and iron. If the fabric is going into my stash, I just dry it and fold it. When I'm ready to use it, I really spray it (not running, slightly damp) with Niagra non-aerosol (sp?), then iron it dry.
So I do #1, starch before you cut
I have also used it to coax blocks into square, but usually if I've starched first, I have pretty good luck with them being square when I'm done.
I made 1 really complex block with small pieces. For this block I saturated the fabric before I cut with spray starch. It was almost cardboard-like I think it helped.