I think you are using the wrong stitch. I don't use a blanket stitch (which has the double-back in it) for applique. I think the stitch I use is called a blind hem stitch. Basically it takes 3 or 4 stitches forward, then makes a single zigzag stitch into the applique. I adjust the stitch length so the stitches are quite small and the zigzag is also small. Check your machine manual for the "blind hem stitch".
Edit: This is the same stitch that is used to hem curtains, although in that case you need to fold the curtain a certain way before stitching. The "zigzag" portion is the only stitch that shows on the right side of the curtain; the straight stitches are all in the hem.