You just need a color inkjet printer & you can do it yourself at home. You can print right on a solid fabric with this:
http://www.amazon.com/s/ref=nb_sb_no...photo%20fabric
or you can print an iron-on decal that you can then press onto a 2nd fabric with this:
http://www.amazon.com/June-Tailor-Fu...t+photo+fabric
I suppose you could do that with the first product & some fusible web, but I would recommend just going with the 2nd product if that's your plan. There are different brands & larger quantity bundles available. You want to make sure to get the right one for either light or dark colored fabrics. Also, read the description & reviews carefully as some hold up much better in the wash than others. I haven't done it myself yet personally (planning to do one for my mom for Christmas), but I think June Tailor's brand is a good one. Maybe others could confirm.
I love the idea of putting the baby's photos in the block each month. So adorable. Unfortunately, the decent printable photo fabrics aren't cheap, so unless you can manage to get more than one photo per 8.5x11" sheet, it could easily run you $40-50.
If you don't own an InkJet & can't hook up with a friend who has one every month or two, you can also take your photos over to a local print shop. Many times they are able to print on fabric for you. I know fabric designers talk about having done that to print a sample to send to fabric manufacturers & my sister found a local print shop by her that did that, but if you don't have any in your area, you can do it online with Spoonflower.