This house that we live in now is the first place I've ever had this problem. I thought it was something in the water here in Virginia. I lived in AL for 18 years and if it had anything to do with humidity (since we keep our doors and windows open as much as possible), it would've happened there.
My husband decided to dig around the web for an answer and found these possibilities below at YahooAnswers.com. I decided to try #2 using more than a cup of vinegar and I let it soak for several hours before putting it through the washing cycle. Then I did as it said to run it as a regular load with detergent. I don't use fabric softener, but I do use bamboo dryer sheets:http://www.theherbsplace.com/Natures_Fresh_Dryer_Sheets.html
It's been weeks now and that awful smell has not come back on the towels. I'm very excited and ready to do the kitchen towels now.
1 (My note: I've always washed towels every two weeks, so I did not think that was my problem)
Wash your towels. If you want fresh smelling towels, you can'’t limit washings to once a week. You should wash towels every two or three days, washing in hot water.
2 (My note: This worked!)
Use vinegar to get rid of the mildew smell. If your towels get a mildew smell, use vinegar. For a large load, use ¾ cup vinegar. Add the vinegar to the water, and let it mix for a few minutes. Then add the towels. Do not add detergent to this washing cycle. Once the towels have gone through the complete washing cycle, wash as you normally do with detergent and fabric softener. Fabric softener is optional, but also helpful.
3 (My note: I've never left towels in overnight)
Remove the towels from the washer and immediately transfer them to the dryer. Nothing causes towels to smell faster than leaving wet towels in a washing machine over night. As soon as the washing cycle is over, immediately transfer them to the dryer. Add a fabric softener sheet for extra scent and softness.
4 (My note: I've never done this either, although I do enjoy hanging my sheets out)
Line dry your towels. Wash your towels and hang them to line dry. You can put them in the fluff cycle once they are dry to fluff them up. Avoid line drying, if rain is in the weather forecast.
5 (My note: We have always done this)
Hang up used towels. Once you are done using your towel, hang it up so it can air out. Wet towels that are not air drying will get smelly much faster than towels that are hung up to air out.
6 (My note: If #2 didn't work, we were going to try this next)
Use baking soda with your detergent. Add baking soda, along with the detergent to your wash cycle. Wash in hot water and follow with two rinses. You may also add fabric softener if you wish. Do not use vinegar with the baking soda and detergent as the baking soda and vinegar will cancel one another out.
If you try any of these ideas, let us know whether it worked or not - thanks!