If you want to apply a decal around a cylinder, you have to have the model centered on the x/y axis if I understand it correctly. Take a soda can model; if you don't have it centered on the x/y axis, the decal will appear smeared or unrecognizable.
I think there is a way to move the offset of the decal to your model, but someone else will have to elaborate. Also, if you apply a decal with a spherical projection to a flat surface, you will always get distortion.