I like to have the appliqué on the left of the needle. When the needle goes to the right, it should almost touch the edge of your appliqué when it goes in to your backing fabric. This way, it is easier to make sure you catch the appliqué.
I use quite small stitches on my Pfaff 1.5 width & 2.0 length, I think. I actually find a 'buttonhole' type stitch easier. It's not as dense as satin stitch and gives a nice finish IMHO. I also use an open-toe foot so I can see where the needle is actually going.
A tip I got from a fellow quilter is that if your foot has a bar across the front, just saw it off! (Think this'll only work if it's plastic, lol).