When using MakeClothes on Blender 2.65, if you get an error when "Projecting UV's," don't worry over-much. Simply select your clothing and your human objects and click the "Make Clothes" button again. After it is finished, the "Project UV's" should work properly.
Also, the important thing when making clothes is to make certain that you have the correct Z depth and Boundaries set. If you do not, your vertices will try to force themselves to conform to the default values. Setting them correctly will keep your vertices in context with your human mesh.
Final note, Thanks so much to ThomasL and the rest of the MakeClothes team for their awesome work as well as everyone involved with the development and implementation of MakeHuman! You're all awesome!