HOT water and vinegar works for me.
When I have stinky dish rags, I put them on the rack in the dishwasher and then it's not stinky when it comes out because the hot water has killed the 'stink bugs' This way I don't feel the "ick" putting them in the wash with the other stuff. Or if I'm draining boiling water from pasta(or whatever) I pour it on the rag in the sink. :-) I haven't had too many stinky rags lately because I do make a point of changing them out every few days at least but this helps when I *do* have them.
I would definitely try to train your kids to HANG DRY their towels! Before a bath is when to change their towels, not right after. Good luck!!!