I just posted some instructions for felting a handbag. The knitting instructions were a few weeks ago, while I was traveling, just got the thing to a washing machine. Turned out pretty good, once it dries, I'll trim all the straggly yarn from the felting process, shave it, shape it and walla!!!
If you check out the following link (a post I did earlier today) you'll see this purse laid out on the same throw, the squares pattern on the throw show the amazing amount of shrinkage in the felting process.
The strap is cast on 13, knit every row. When this felts it does not felt as much as the bag, so instead of expecting a 1/3 shrinkage, allow for only about 1/4. Other knitting patterns have a tendancy to curl if you're trying to do a wide strap.