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We cut the screenprinting images out of thin acetate sheet (I bought it in a packet of 20 from Officeworks), which stuck pretty well to the screen (we didn't have any bleeding problems). Using acetate rather than paper meant that we could keep our designs, and do them in different colours, without having to recut every time. It was very successful.
Our only drama was with setting the paint. When we ironed it some got on the iron and with the red for example, the material became a little pinkish around the print. I am not sure if we can set the paint in the oven or dryer, but next time if I iron, I will not iron direcly onto the paint.