I've just done an applied I-cord on one of Cat Bordhi's cat baskets. The directions are in her 2nd Treasury with some good pictures. It wasn't done in two colors, though. What I did was change colors all around, using four or five different colors, but just one at a time.
Basically, you have the last row of stitches still on your needles, add 2 stitches at the start of the row by knitting them on, then knit those 2 stitches plus 1 more (the first main purse stitch). (*Move those just done sts back to your left needle, K2, then K2 tog, knitting the third st together with the 2nd main purse stitch still on your needles), repeat from *).
Just reread your post...it wasn't "twisted" either... :(
Don't know if this helped or not...
OTN: Merino Stripes Curved V-Neck Vest, Counterpane Preemie Blankie (3 squares done!), Baby Bunting in Brioche Stitch, 2 Twice-Knit Snuggles, 3-D Honeycomb Snuggle, Cat Sweater, Preemie Beenie
Recently Finished Projects: 2 felted mobius cat baskets, MANY Lace Washcloths, The Magic Scarf from HELL, 6 Knitted Lace XMas Balls in crochet thread, Lace XMas Ball in mohair, 4 Initialed Washcloths, 2 Lacy Soap Socks (1 knit, 1 crochet), 2 Seamless Rectangle Snuggles (one outside in, one inside out), XMas Tree Illusion Snuggle, 3 scarves for presents, Fisherman Knit Snuggle, Turkish Stitch String Bag, Wheelie Steering Wheel Cover, Moebius Cat Basket, 9 Snuggles, Preemie Hats, Sandy's (Felted) Cat Basket