I use Thread Heaven to condition my thread (not sure if this is still available). Although people rave about Aurifil 50 wt., I find it twists and knots just as you describe (but the colors are heavenly). I like to use Masterpiece 2-ply; they discontinued this on spools/cones, but Superior Threads has a supply of bobbins in all the Masterpiece colors in 2-ply (this is also my favorite piecing thread, in 3-ply). I've also used silk thread for applique, which is nice. In the end, though, I go with whatever is the closest in color to my applique piece (I've even used heavy hand-quilting thread).