Read the instructions for the Pellon product you're using (I'm assuming it's 805, but I could be wrong). It requires prewashing the fabric to remove all the chemicals added during manufacturing and finishing and not using anything in the dryer. Also make sure you're using a hot, dry iron for the recommended length of time.
The paper is sticking because you aren't waiting long enough after ironing to remove it. The glue has to completely cool and the longer you wait the easier the paper comes off, even on tiny appliqué pieces. I wait an hour at least, and several days if I have the time. I use the stuff by the bolt.
