We've been co-sleeping with our DS almost since birth (now 4.5 weeks). He sleeps in the middle of the bed (i.e. below arm level to avoid our pillows - which I couldn't do without) either between us, or between me and a bed guard on a small towel on top of the duvet with his own blankets. I have a blanket to cover my arms etc to make sure the duvet stays low and won't get bunched up around him.
It seems to work well, and he's already managing to settle himself to sleep - I've made a point of putting him down awake at least some of the time, but I'm always looking for better ways of doing things.
I've read various things that recommend using a sheet and blanket to lower the risk of smothering etc (I guess as they're more breathable).
How do other people 'do' co-sleeping in terms of bedding and baby placement?