I've done a bunch of towels now using Transfer-eze (I got mine from Wooly Thread). I have a few done I can show now.
Mostly I used printed out coloring pages from the Internet, but for the Muppet's Swedish Chef, I couldn't find one. I printed a color photo in B&W and then used that. I filled in the detail lines that had faded out using a plain pencil on the Transfer-eze. I used the original printout to guide me when I just couldn't tell what was what (his spoon turned into a blob that looked like a fold in his shirt until I redrew the outline). I was quite happy when, as I'd hoped, the pencil lines vanished with the Transfer-eze.Using the photo made the picture I was working with very different from the final embroidery. (The pink at the bottom is not bleeding, it's a reflection of the pink bath towel I have the embroidery sitting on...it was still wet when I took this.)
This is a more traditional coloring page, below. I ignored the black spaces (except for eyeballs, those I filled in) and just outlined the design. Here it is before rinsing off the Transfer-eze.The product dissolved pretty quickly. I used warm running water with a drop of dish detergent and I did rub with my fingers. I have no patience. I found it worked better if I trimmed the sheet around the design before putting it onto the fabric or if I pulled off the outside edges after stitching (not so easy, this stuff really stuck to the cotton towel fabric). Here it is after rinsing.I ironed them dry and they came out very nice. I still have one I'm working on (Kermit). I really like that I don't have to worry about covering each design line completely. They just vanish!
Mary Corbet at Needle 'n Thread did a detailed article on using Transfer-eze with many good tips.