I rub oil in and then rub a light coat of powder. With the oil on first it makes sure that the powder stays on skin and doesn't clog the diaper up and you still get the nice soft skin and reduced risk of rash. Also smell good.
Firstly I use oil by rubbing it on the skin (duh =P) , and then I apply the powder on my body in most cases , unless I wont have as much time free of family and then it goes by sprinkling it in the diaper =P.
I lightly dust the diaper before laying to put it on, then smooth some on my 'area' and at my hips, and then in the crease of my legs. If you cake it on, you've gone too far!
The more you use the more it interferes with absorbancy, true, but the little bit I use doesn't affect it.