If you can, get Harriet Hargrave's book which explains in detail different ways to do applique. Here is a link:
http://www.amazon.com/Mastering-Mach...dp/157120136X/
My preference is freezer paper applique (with edges turned under using white school paste rather than a glue stick) and a small reverse hem stitch. For a baby quilt, I would probably choose a fine polyester or cotton thread for the applique stitch.