The BudK catalog, mostly containing knives and Zombie Apocalypse supplies, had a cheap "space blanket" for sale. A blanket is just a large towel, right? This is thin aluminized material that is folded and compressed into a very tiny package. Even without cutting down, you can fit it in your pocket, smaller than your wallet!
As indicated in the accepted answer, optimizing the Towel for some purpose compromises it for others. This is optimized for "keeping warm" as a thermal layer, and high de-optimized for drying off or being cushioning. Even so, it has unique uses not shared by my regular Towel: it can reflect light like a mirror! It's actually water and air tight, rather than porous. It might be useful in fashioning a still for drinking water, both for concentrating sunlight and for providing a surface for condensation and making a water-tight container and keeping the wind off the apparatus.
The accepted answer makes me realize that the real point is being very general. Just like duck tape and paracord, it has a variety of uses. In the Towel in particular this relies on mediocre properties, having some blend of A and B which are each accessible, as opposed to being much better at A while not having B.
I recall Microfiber cloth towels for sale, and one of the reviews explained how they are great for keeping on a sailboat because they are remarkably absorbant yet more compact when dry, so good for limited storage. So it is with the Towel: you want it easily stowed and thus light and compact.
So use materials not known at the time H2G2 was written, using microfiber napping to be both suber absorbant for water and able to handle hydrophobic (oily) materials as well.
Make the weave out of super strong monofilliment. Have it so if you cut off a strip it won't make the rest of the Towel unravel, but you can unweave the strip to yield a long strong cord (and a handfull of loose felt).
The loose felt could be used as fire kindling. The strips torn make good bandages, so make the fluff be antimicrobial as well.
But that's all 2010 technology. Just as we have stuff at Walmart that was impossible in 1985, what will the future — or advanced technology from aliens — bring?
Ever hear of Programmable Matter? Wil uses this in several of his SF novels, and has a real-world patent on the quantum well technology.
The Flick of a switch: A wall becomes a window becomes a hologram generator. Any chair becomes a hypercomputer, any rooftop a power or waste treatment plant.
Imagine being able to program matter itself—to change it, with the click of a cursor, from hard to soft, from paper to stone, from fluorescent to super-reflective to invisible.
Or a humble Towel. Now there is a mil-spec towel for you! It normally maintains the form of a primitive cloth towel, with random daily changes to its color and print pattern. If used for any purpose, its intelligence automatically modifies its form and properties to be better at that task, while stealthily trying to remain "just a towel" to outward appearances.
In more extreme needs, it can morph into any material desired.
Folded up into a compact form, it will be your 21st-century phone/PDA. Unfold for a big screen, window, sheet metal, or the softest silk. Wrap it around yourself and it becomes a full space suit with life support capble of adapting to any extreme environment.