Here's a darling and clever spin on decorating with baby clothes. Jenny of Allsorts uses Ikea shadowboxes to display vintage doll dresses. In this case the clothes belong to dolls that have been in her family for years - a lovely way to honor and tie together generations of women.
Shadowboxes are easy to find even if you don't live near an Ikea. Jenny wrapped the backs in fabric and you could also use decorative paper, wrapping paper or leftover scraps of wallpaper. She used baker's twine to create a clothesline and tiny clothespins to hold the dresses (search online for "miniature clothespins" if you can't find them locally. Here's one source.).
Jenny is a children's book illustrator and Allsorts is certainly worth a visit. See more of her doll clothes shadowboxes here. She's going to take pictures once she's hung these up so check back with her for that.