All of these responses have been interesting.... I have never used the modge podge, but I use a Triple Thick glaze over the top and sides of the image ontop of the cap. That works well, but my local stores stopped selling the Triple Thick, so I'm open to new ideas!
One other factor that may lend to blurring images- the temperature of the room where the caps are drying. I learned if I put the tray of caps to dry in a place too hot (like my sunroom in the summer!) the images tend to turn out funny. A cooler place is better. www.simplystitching.etsy.com