On my last chocolate stout I put 8oz of cocoa nibs into a empty clean jam jar and then filled with vodka untill the nibs were just covered. I left them to sit for 4 days and shook the jam jar a couple times a day. I then dumped the whole lot (nibs and vodka, no muslin bag) into the primary a week into fermentation and left it in the primary another 2 weeks then bottled. The stout finished with a nice chocolate smell and a small chocolate note in the after taste. Next time i would probably add more nibs and also some cocoa powder in at flameout to get a bigger chocolate hit.
The vodka helps sterilize the nibs however its main purpose is that it extracts the chocolate flavour out of the nibs, so you definitley want to add the vodka into the fermenter too as most of that chocolate flavour will now be in the vodka. Using the method I stated, I had zero vodka taste in the final product.
You could just dump the nibs in without soaking in vodka first, however, you run the risk of an infection (unlikely) plus you will not get as much choc flavour out of them as you would do by making a vodka tincture.
Also, if you want you can soak them in dark rum. I have heard the rum compliments the chocolate flavour well. however, unlike vodka, you will probably be able to detect the rum taste slightly in the final product.
Hope this helps.