It has been (mumblemumble) years since I worked with a potholder loom, but I can give you some advice on working with the tshirts. I cut them up and weave them into rugs. The best ones are ones that have a minimum of the stiff plasticky pics on the front. Start at the bottom and cut the hem off, but when you get around to your starting point, curve right and just begin a spiral that goes all the way up your shirt.
I have pics of the process on my blog: www.sonderbardesigns.blogspot.com, but sorry, I don't know how to get them on here. Feel free to comment on there with any other questions. Hope that helps a tiny bit!