I would think seed-side up would work better. When the seed sprouts a root, the roots should be able to work through the paper towel. The leaves might have more trouble getting through.

Here is a link that might be useful: Tales of a Transplanted Gardener

I used paper toweling and put the seeds on top and covered with a bit of dirt. Even though the towel disappeared, I have had poor germination of seeds. I even tried pre-sprouting and still had little luck. I am trying again with the presprout method.
Keski