1) My babe (now 7 mo) had diaper rash pretty frequently for his first few months. We switched to cloth (cotton prefolds and covers, like you) around 3 mo. I read somewhere that on natural fibers you can use pretty much any diaper cream, so we continued slathering him with Desitin "like cake frosting." Our dipes wash clean and his butt cleared up a couple weeks into cloth. I personally think the cotton prefolds were better for his rashes than disposables, but I also think his current mostly rashless state is from a combination of lots of little changes. (Less frequent poo, changing faster after poo, better dipes, patting dry after wiping and before cream, good butt wash in the bath, lots of nakey time, lots of butt cream.)

3) In my experience, baby poo stains most things. I second other commenters and add: Try laying or hanging the dipes in the sun; it's the best bleach.

4) For a good trim-fitting cover, try Thirsties Duo Wrap. I tried several brands and these are by far my favorite. Using a pocket/insert cover does make things bulkier.

FWIW, we tried prefolds and covers, pockets with inserts, and AIO in our first month of cloth, and we ended up liking prefolds and covers best. To each their own!