I would be interested to know how the smell comes about. I used terry nappies years ago with my first born and had no funny smell, but we had a separate washer and dryer. I used to soak and just use the washer to rinse, then once in a while do a 95 degree wash to keep them snowy white. But that was the old fashioned way!
In those days we used to use Milton to sterilise our bottles, which was good for 24 hours, then you poured your milton into the nappy bucket and in went your nappies.