Re: felt circles
I use both, but I definitely prefer stiffened. Unfortunately it runs about $1 for a square, when the un-stiffened go on sale 5/$1. However, if you use enough hot glue, I find that the cheaper felt works just fine.
As for size, when I first started making circles I just found a metal washer and ran my hot knife (wood burner with sharp point tip) around it. I found that it was a little too close for comfort in proximity to burning my fingers, so I got a larger washer with about a 1" opening, and then ran the hot knife on the inside. This worked well, and the circles were nice looking and perfectly round, but then I got a Sizzix and the Circle die for it. Now I use it and I get fabulous circles in four different sizes, and can even do multiple layers of felt in one pass through the machine. They actually have a die on the Sizzix website that makes just 1" circles, about 14 at a time if I remember correctly. There's also one that makes them in the 1.25" size, but it doesn't make quite as many at a time. Someday I will get these, but right now I don't have the spare $20 apiece laying around.
Re: felt circles
I use wool blend felt (soft) and acrylic felt. The stiff felt I think you are talking about is almost like a sheet of cardboard. I don't use this, as it doesn't mould to the headband/flower well.
I'm in Aust as well and get my felt from Spotlight in the squares, which I think are about 80c - $1.50 depending on wool or acrylic. They have a good range of colours. Or you can buy it by the metre but it is quite expensive $11 - $15.00 a metre.
I use my sizzix machine to cut the circles in different sizes.