Judy
This method might take longer but it will look really good 
unravel, comb, and straighten the yarn like in this tutorial: http://www.cutoutandkeep.net/projects/fox-tailout-of-yarn
and then you can do whatever you want with it! (braid, wind around, curling iron etc.) it will look realistic too. good luck!
Posts by Judy
Lace would look really pretty! You can also add bows, buttons, ribbon, iron on patches, fabric paint, etc.
Here is a screen printing tutorial, you use an embroidery hoop, sheer fabric, and glue; and you can reuse it over and over again: http://craftgrrl.livejournal.com/3674467.html
This is another tutorial using the same method:
http://diyfashion.about.com/od/dyingandscreenprinting/ss/ScreenPrint.htm
Otherwise, you could print out the image and trace it on heavy card stock, then use an exacto knife to cut out... then you can use fabric paint with the stencil you just made and paint the design on.
Or Just search "how to screen print/ how to silk screen" and there will be lots of tutorials online.
Good luck!