There is no doubt that laundry causes an environmental impact.
There is no zero-impact method of dealing with human waste. The closest we have come so far would be to use 100% elimination communication with your baby and put their waste into a composting toilet.
That might be out of reach for most families.
Taking as a given that most families will choose to use diapers on their babies (at least part time – even most EC families use diapers some of the time), if we’re looking at what causes the least amount of environmental impact, it seems clear that cloth diapers win.
The Real Diaper Association has an excellent run-down of the various environmental costs of disposable diapering. After looking through that list, two or three loads of laundry per week pales in comparison.
Unfortunately, there have been no good, unbiased studies that compare cloth diapers and disposable diapers in terms of lifecycle impact.