Decal Orientation

cylindrical is the way to go on a cylinder of course, no distortion that way. Whether it lines up the way you expect depends on it's orientation, assuming the picture is 'upright' the cylinder should have it's long axis along the Y-axis otherwise the texture is going to need some adjustment because Y is the default direction for cylindrical projection (I'm guessing it's that way since that would be right for the thing most decaled cylindrically - bottles)