One may not wash clothes on Chol Hamoed, even if they will be worn on the holiday itself. The reason for this, as taught by our sages, is because the person might not wash his clothes before the holiday and therefore enter the holiday wearing dirty clothes. Though, it is permissible to wash hand towels, as they constantly become dirty.
Additionally, one may wash children’s clothing as it is common for those to become soiled, but if he washes it by hand, he must wash each article separately, and wash only that which is most necessary, but washing babies’ clothes or dirty diapers all together is permitted because they are needed often. If he is using a washing machine, he may wash many articles at once but only if they will be used during the holiday.
Adults may not wash their clothes together with the children’s clothes for the reason that we mentioned above – so he does not enter the holiday with dirty clothing. It is written in the Code of Jewish Law, that one may wash handkerchiefs during the holiday, because even if he washed them before the holiday, they still become dirty very quickly and must be changed everyday. He is allowed to wash them even if he has many. Based on this ruling, it says in Chazon Ovadiah, that bed linen may be washed if it is needed for hotel guests.
Conclusion: One is allowed to wash the sheets and bed linen of hotels and hospitals as they are needed for medical reasons. But whether one may wash them for home use is under debate.