Step 1: Rinse in cold water
Step 2: Shampoo thoroughly, rinse twice
Step 3: Working in sections, saturate entire piece with hair conditioner
Step 4: Let sit in cool water for over an hour
Step 5: Rinse thoroughly
Step 6: Run it through the lightest wash cycle your washer machine can accomplish. Detergent is ok here as long as it is a small amount
Step 7: Put it in the dryer. You can use dryer sheets if you want. Dry until slightly damp. Take out and block and let air dry the rest of the way.
That's it, you're done! You'll be surprised by how soft and pleasant this yarn can become. I've also heard that the more you wash it, the softer it gets.
I used cheapo shampoo and conditioner because that's what I had on hand, so don't worry if you don't have fancy hair stuff.