According to the Green Lantern - Slate's go-to-guy for environmental questions - cloth diapers are more environmentally-friendly than are plastic disposable diapers, so long as you clean the reusable diapers in an energy-efficient washing machine.
From the article:
The bottom line is that cloth diapers are greener than run-of-the-mill Pampers and Huggies, as long as you're committed to an energy-efficient laundry regimen. But that commitment takes more than just an EnergyStar washing machine and a clothing line for air drying. It also takes time, a commodity which will be in startlingly short supply once your offspring drops. And thus we must delve into the ceaseless conflict between idealism and reality.
Here is where you can learn more about the cloth-plastic diaper debate!