Towel swings are generally used as a teaching/corrective drill. The arms, towel and kb should always form a straight line. If the KB is flipping up or sagging down, it is feedback that something is wrong.
I've never used it as an alternative to regular two arm swings. I think doing so would mitigate the advantage of two arm swings: the ability to exert maximum power. The towel enforces smoothness, but doesn't transfer power as well.
When I am doing a lot of two arm swings, I tend to just change up between pinkies inside and outside the horns. Someone with really big hands might have to just go pinkies out as a standard grip.