I have done several and am in the process of writing a book on "how-to"....I have had the most success with trimming the baby clothing close enough to make it work properly; usually by eliminating the back layers if at all possible. I've only had one pair of size 6 mos. pants that the customer wanted left whole: they were hard to applique, but I did it. When I quilt them, I quilt around the applique but...if it's large, I come up with a design to go in the applique as well. And of course, all the blocks are usually squares with the appliques on them. After they're all put togther, I treat it as a "normal" quilt and put it on the long arm. I've not had problems with needles or thread breaking and the quilts look very good when completed. Hope this helps a bit.