I did an I-cord handle for one of my first purses and it really didn't shrink all that much. I can't remember the length I made, but it didn't turn out that much shorter after felting. I used size 10US needles and it was a 7 stitch I-cord (yeah, like what was I thinking with that
?). I kind of flattened it out while drying - it's about 5/8" wide.
There was a Knitty Gritty episode where the guest made a handle like brendajos described, then ran piping through it for extra strength right after felting. Details here