We use cloth diapers. It all depends on how much you're willing to invest in time/effort for them. You can do the Chinese prefolds with a diaper cover or you can go with the pocket all-in-one diapers with inserts. Wash them yourself or use a diaper service?
The cloth diapers we have used and like best are bumGenius [ http://www.bumgenius.com/one-size.php ] and Fuzzi Bunz [ http://www.fuzzibunz.com/fuzzi_details.php ]. They are both pocket all-in-one styles meaning we place an insert into the pocket and put it on pretty much like a Pampers. The insert works like the absorbing gel in a disposable diaper. The new bumGenius 3.0 diapers are one size meaning the snaps on the front can adjust the rise so the one diaper fits kids from 7 to 35 pounds!
As for the enviromental factors, consider this...the disposables have ALREADY been made. So, they are going into a landfill whether you buy them or not. Next, although you are not contributing to the landfill, the cloth diapers still have to be cleaned. That means washing machine (energy), detergents (eco friendly though) and a dryer (energy). There was a pretty good analysis that showed the costs of disposable vs. cloth and accounted not only for the cost of the diapers but also the energy costs for cloth.
All that aside, I have one bit of anecdotal evidence: when DS was in cloth diapers, he NEVER had a diaper rash! In fact, we never had any diaper rash medication until the time we put him in disposables. He got a pretty bad rash that had to be treated with a prescription diaper rash ointment!
There are many places to get the cloth diapers but the place we use for ours is called Cotton Babies (they have a web site) because they have a program that lets you send in your old (clean of course) diapers and they'll give you a store credit of about 50% towards other stuff from them. That was good when we mainly used the Fuzzi Bunz and would have to move to the next size up.
Regardless of the type of diaper, a few things...NEVER EVER use fabric softener! Downy, Bounce etc will make the cloth waterproof and is exactly NOT what you want for the diaper because it will cause them to leak. ONLY use detergents like Allens Naturally or BioKleen the others with their additives will cause the diapers to fail and will also leave residue causing the diapers to get stinky even after washing.
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Here is analysis of cloth vs. disposable
http://www.punkinbutt.com/diaper_dollar.php
0 – 3 months 10-12 diaper changes/day
3 – 12 months 7-9 diaper changes/day
12 - 30 months 6-7 diaper changes/day
= about 6750 diaper changes until potty trained (a conservative estimate)
TOTAL Financial Cost for 6750 diaper changes
Cloth (Home Laundered) -- $778.05 or 12 ¢ per change
Cloth (Diaper Service) -- $2133.00 or 31 ¢ per change
Disposables -- $2530.00 or 37 ¢ per change
http://tinyurl.com/2mmd3t
http://www.naturalfamilyonline.com/5-diap/45-diaper-cost.htm
"The total estimated average cost is $2,694.54 for 7,349 disposable, single-use diapers. Keep in mind that this is a conservative estimate. It is not uncommon for a child of 3 years to require a diaper at night, and children in single-use diapers tend not to feel wetness, requiring a longer duration of time for toilet training success. Your child’s individual sleep pattern, body functions and time frame for toilet training success will determine the number of actual diaper changes required.
Cloth diapering is relatively simple and financially rewarding, saving from a minimum of $2,300 to upwards of $5,000."