Why were the Elven cloak's abilities not utilized more?

Question

Nature of Elvish Cloaks

This wiki article appears to list all the main points that elven cloaks came into play in Tolkien's works. It seems clear that both in the books and the movie that the idea was enhanced camouflage, not invisibility (as the One Ring gave).

What is not clear from the article is how "active" one had to be in making this camouflage work. It would seem that, barring making a bunch of noise, that the cloaks would act rather passively (not requiring that they be "activated" so to speak; indeed, the wiki article seems to indicate that the elves did not even really consider them "magic" per se). Of course, to fully camouflage one would need to cover oneself completely (as demonstrated in the movie scene from the Two Towers where Frodo covers he and Sam).

Specific Example

But what elicits my question specifically is scenes such as this one, where in the background you can see the hobbits sleeping (Frodo I think specifically), and distinguish both his head and his legs. When sleeping in dangerous country, it would seem most prudent to cover oneself completely with the cloak when bedding down, so that one might look like a rock, tree, bush, whatever while slumbering.

Specific Questions

1. THE MAIN QUESTION: Is there anything in Tolkien's lore that would indicate the cloaks needed more conscious involvement (hence, while sleeping they would not cloak).
2. If (1) is true, the cloaks need more active use, are there clear examples in the books where members of the original fellowship are "spotted" even though "hiding," showing they were not utilizing the benefits of the cloak? In the movie I can think of the scene right before Frodo and Sam are captured by the men of Gondor (while peering over the cliff, they are not covering themselves, at least their heads, with the cloaks, which would seem prudent). However, to their credit they moved to that location and from it, so the men of Gondor could have spotted them before or after taking up a "hiding" position on the cliff edge.
3. If (1) is false, and passive use was the norm, should we consider the reason the cloaks are not used more, as in such scenes as the sleeping hobbits, to be (a) bad judgment on their part, or (b) bad movie and/or book plot.

Answer 1

There's nothing to indicate conscious involvement is required. The cloaks are described in the book during the "Farewell to Lórien" chapter, firstly in general terms:

It was hard to say of what colour they were: grey with the hue of twilight under the trees they seemed to be; and yet if they were moved, or set in another light, they were green as shadowed leaves, or brown as fallow fields by night, dusk-silver as water under the stars.

And then their camouflage abilities following Pippin's questioning:

But they should serve you well: they are light to wear, and warm enough or cool enough at need. And you will find them a great aid in keeping out of the sight of unfriendly eyes, whether you walk among the stones or the trees.

Since they don't require conscious involvement your question 2 doesn't need answering, but it's worth noting that in both book and movie Faramir and his men come on Frodo and Sam by surprise.

As for why they weren't used more, we should firstly not assume that Tolkien wrote about every single case where they were used; i.e. there may be cases in the book where they were used but Tolkien just didn't write about them. Despite that, there are cases where they were used in the book but not in the movie.

When Aragorn, Legolas and Gimli meet the Riders of Rohan they used them:

A little above the hill's foot they halted, and wrapping their cloaks about them, they sat huddled together upon the faded grass.

Merry and Pippin use them when escaping from the Uruk-hai:

But the hobbit was not seen: he was not "in the open", for it was night and he still had his elven-cloak.

Sam and Frodo use them when capturing Sméagol:

It is hard even for friendly eyes to see these elven-cloaks: I cannot see you in the shadow even at a few paces.

They use them on the way through Ithilien:

Not even an eagle poised against the sun would have marked the hobbits sitting there, under the weight of doom, silent, not moving, shrouded in their thin grey cloaks.

However, the cloaks are not infallible; the book also notes of the Dagorlad:

On that stony plain there was no cover, and across it ran the highways of the Orcs and the soldiers of the Enemy. Not even the cloaks of Lórien would have concealed them there.

It's also the case that following Frodo's capture at Cirith Ungol, his cloak was taken from him: it's one of the tokens that the Mouth of Sauron brought to Gandalf:

Dwarf-coat, Elf-cloak, blade of the downfallen West...

So the premise of your question is therefore invalid. Why were the cloaks not used more? They were.