I just figure terrycloth is absorbent, cheap and plenty soft enough that it doesn't have a chance on harming the cladding. I say save the nicer, more expensive microfiber for work on the painted areas that are more scratch-prone & delicate. Honestly, although I have some microfiber towels, I've never actually used them (where the heck are they?) I've always been perfectly happy with terrycloth even when polishing/waxing paint. (Tip: always remove any tags from the towel - they WILL scratch!)
What I like about using a small rag (in addition to conserving 303, etc.) is that it makes it tremendously easier to get into all the small places like around the racks, gaps between the door/fender, front lenses, cladding bolts, etc.
Ha, I do that, too! Sometimes I notice the next day that I missed a spot.