[ Background: I spent the weekend at the Lacey Sock Knitting Machine retreat, and taught 3 classes ... so there will be several new sock machine entries up over the next few weeks! ]
A set-up bonnet is a great way to personalize your machine and give you a reliable way to start knitting on it. The bath scrunchy is a faster set-up, but tends to rip apart with too much weight, so save it for the fleece-to-feet contest once you've used it to make yourself a regular set-up bonnet.
Country Rain has a great on-line pictorial for making and using a set-up bonnet.
Here are my words-only instructions:
Get your sock machine started however you do (bath scrunchy, metal setup basket, coil, ...) and knitting all needles (no ribber) on waste yarn.
Switch over to yarn for setup basket (change yarn color, at least).
Knit 10 rows in setup basket yarn plain.
All the way around, move stitches off every other needle onto its neighbor, so you have 1 needle with 2 stitches on it, 1 needle bare. This becomes the picot edge at the top of the set-up bonnet.
Knit around carefully, making sure all the empty needles now have yarn around them. (If they don't, lift the yarn over so they do.)
Knit 9 more rows.
Hang the hem -- lift up the purl bump for the corresponding stitch onto each needle, all the way around. BE VERY CAREFUL when moving the crank forward to access the last few stitches -- as weights may have been removed, and the last part won't be well weighted. Pull down on the work at the point where you are cranking to make sure it all knits cleanly.
Now knit a very long tube -- to the bottom of your crank wheel, or long enough that you can easily attach a buckle to it. Then cut bonnet yarn, re-attach waste yarn, and knit 10 rows. Cut waste yarn and knit bonnet off of machine (Crank one round empty, this will knit it off the machine).
Run the bonnet yarn through the last row of stitches, then pull out the waste yarn, leaving the yarn loose, not pulled tight, so the setup bonnet is actually a setup tube. This way you can reach my hand up the tube and access whatever pegs or yarn you've let slip into the sock-in-progress. Or, if you want, pull the yarn tight to close the bottom for the official "bonnet" look.
Write the cylinder size on the bonnet (60, 80, 72, ...) with a permanent marker.
The set-up bonnet is used by hooking the big loop of yarn at the picot edge of the hem-top over every other needle. Cranking two rounds of waste yarn once the bonnet is hooked gives you a stitch on every needle.
You can also store the matching ribber plate inside the corresponding set-up bonnet when they are not in use.
If you'd like further explanation of any of this, please email me or leave a comment. Thanks!