I'm planning a shower for my cousin and she asked that we do this instead of games...I'm finding different ways to go about it (using stencils and fabric paint, using fabric and heat bond, etc). What is the most efficient, easiest way to do this if there are going to be a lot of people there...we are thinking about 30 or 40, and I don't want it to be a a huge cluster!

TIA!
Re: Decorating onesies?
ive never done the onesie decorating but i did attend a shower where each guest got a square of fabric to decorate and the host made a lap quilt out of the decorated squares
since you have 30-40 people coming I would set up decoration stations so people can mingle and there will not be 30 people in one spot
GL
We had this at my shower this past weekend. We decorated onsie's and bibs. I liked the bib idea because it was less expensive.
Since my shower was more of an "open-house" we just had a decorating table set up with different bib/onsie options along with fabric markers and puff paint. The guests really seemed to enjoy it. My host hung a clothes line so people could hang their creation to dry when they were done.
Good Luck!
One thing to consider before my advice on how to do it successfully (and really it's for your cousin to consider I suppose)... I've done this several times, and each time the mother-to-be RARELY keeps most of the onesies. It's a fun time-waster, but they are hardly ever wearable for baby unless you've got all the right (and expensive) supplies and very talented artists as guests.
That being said...
1- set up a decorating station with everything laid out and clear instructions posted for people to follow. Make a sample so that people have a visual. It's so much easier than trying to organize a time-specific decorating activity... people can come and go as they please when they want to decorate.
2- Puff paints are the worst
Very messy, takes forever to dry, and they make for ugly onesies. Get a few if you'd like variety, but I suggest fabric markers instead. People who aren't very crafty will feel more comfy with a pen/marker instead of a tube of paint and their crafts will come out better.
3- If you do use puff paint, have cardboard to put between the front and back of the onesie so it doesn't get ruined and stuck together.
4- other supplies: a clothesline and pins to hang the onesies on for drying, stencils (iron-ons would be great if you have the room to set it up and no small children need to be monitored at the shower), pins and fabric swatches for people to attach a "made by" tag so the mother-to-be knows who made what. One shower I attended also had a polaroid so that people could take pictures of/with their creations and the host made a scrapbook of the fun for the mother to be.
5- buy a variety of sizes and colors for onesies- baby will grow fast and you will not need 40 nb sized. Bibs are also a good subsititute for onesies since onesies get expensive.
As the other pp mentioned most of the onesies are not very attractive (and ones done using puffy paint even less so). I would suggest doing bibs for 3 reasons. 1. take less time, 2. less expensive, 3. MTB will most likely use them.
You might want to have a couple of large tables set up where people can do this a few at a time (if you are insisting on onsies). I have been to a couple of showers that did the bibs and we each just decorated/painted our own right where we sat (we were at long buffet type tables). We had plenty of room. You will need at least 2 paint/fabric markers for each guest and then they will have to share to use other colors. This can get seriously expensive.
We did this at my shower and it worked out really well....
There were a mix of onsies (various sizes) and plain bibs, and they used fabric markers only. Less mess, no drying. Also didnt really want the stiffness of paint on onsies I was going to put on LO. They also pre-washed everything.
Each onsie/bib was pre-put over a small piece of cardboard and attatched with clothespins to act like an easel/table so that guests could take them to the couch and not need a table to lean on. They were then stacked by size.
They made a sign saying "Decorate a onsie/bib! for baby G_____. Please sign your name on it. " and had made a sample to leave out on the table with the supplies.
For us, this worked out way better than games because people were able to socialize and do things at their own pace.
I think it's a nice idea in theory. Especially if you have a station where people can go do it and it's not obligatory (not everyone is crafty).
Also think about the MTB. Is she the type who would like this sort of thing? Would she put her baby in hand-decorated onesies?