If your using 8.5/2008 I would recomend Ncloth as its a lot easier and faster than Classic cloth.

Hair takes up a lot of render time so you might be best off making it as poly planes and texturing form there using transparancy maps.

A technique I think I saw (or thought of!! it was a long time ago) was to make some paint FX hair then render from a orhtographic view (say the front) so you can see it) then save the image and its alpha, open it in PS and sepperate the colour form the alpha to get a colour map and a transparancy map and then apply the two to your plane.