Softbodies can be used as cloth with some care. You need to make the non soft object a goal than add springs to the particles (I think) that are created in the softbody, the springs can go wacko very easily.
If you want it to collide with a solid object you need to select the particles that are created for the softbody than then select the collison object and go to particles -> collide.
There was a tutorial on creating a softbody flag that might help you out, google it and you might find it as I cant remember where it was.
"No pressure, no diamonds" Thomas Carlyle