Okay, my very first wool diaper cover is soaking in the sink right now, getting lanolized for the first time. Theoretically, it should work as a nice water proof cover and, unlike PUL covers, only needs to be washed every few weeks! Sounds AMAZING, doesn't it? And, as a knitter, I am more than willing to give this a shot. Here's a great link on lanolizing. It even includes a video:
If you're searching for lanolin, like I was before I found this link, check your cabinets. If you nursed your baby, chances are you have lanolin laying around the house from those first few weeks when you were trying to keep your nipples from dropping off your chest. ;) I searched all over town, in all the local yarn stores, trying to find lanolin. Um, DUH, I had some! If you don't already have some, run over to your local Walgreens and pick some up. It's cheap. :)
The other thing you're going to need is Euclan. And if you own wool of any kind, this is great stuff to have. It's a NO RINSE wool wash, which is awesome. Just soak and go.
Last bit of advice on wool. You're always told to soak it, then place between two towels and roll it up to get out excess water, then lay flat to dry. Well, screw the two towels. Stick that sucker in the washing machine and run a spin cycle. No water, just spinning. It will get a lot more of the water out and you won't be waiting for days for your sweater or diaper cover to dry. :)
Okay, gotta go pull that sucker out of the sink! I'll let you know how it works!