You could also knit a larger version of the dishcloth
with the garter stitch edges in whatever stitch pattern(s) you'd like and place the letter in the center or offset as you like. Try a gauge swatch to see haw many sts per inch you get with your yarn and needles and then multiply the sts/inch by the length you'd like to get the number of sts to cast on.
Here's another way
to do it using squares or strips of squares (which cut down on the time spent sewing squares together).
It's a great idea for a gift. Good luck with it!