You say it looks horrible and you can see the seam allowance through the applique. Can you post a picture?
If the seam allowance is showing through the applique because it's a lighter color than the background, can you cut the background out?
If it's not the seam allowance that's showing through, but more like uneven folds and gathers, maybe try trapunto, which is a small piece of batting placed between the applique and the background. This will hide the gathers and give definition to the applique. Google "how to trapunto", there will be a lot of how-tos out there.