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Lynne Bruning has a nice instructable about using machine embroidery to cover conductive thread. I kind of like the look of the silvery thread, but you might feel differently and want to cover it up.

Read more about Machine embroidery covering conductive thread

More:

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Becky from Craft has a great write-up about the new Soft Circuit Kits in the Maker Shed and Massive Soft Electronics Roundup

In the Maker Shed:
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Lilypad E-Sewing Kit