applique question

[sugarcoatedlie.livejournal.com]

I saw this cute bag in the last issue of Bust, and I'd like to make something similar for a friend as a Christmas gift. The bag is just a rectangular tote bag, but it has a cute picture appliqued on, and I've never done applique before. I found some suggestions in the FAQ section that give me an idea of the technique, but I'm still curious about one thing: fabric. What kinds of fabric would you girls recommend for applique? Can I use something cheap like felt? And if so, is that relatively sturdy and washable? She's a DJ, and the bag would be to carry around her DJ books in. It'll probably get drinks spilled on it and need to be washed and stuff. Opinions/ideas?