Here's what I use:

http://sewtrue.com/Store/Jems-500-Ta...halk-P336.html

Comes in lots of colors, but the white (sort of a gray-white) is great. It's pure clay (no wax), and dusts off beautifully. I figure, if this stuff works, why take a chance with whatever chemical is in the chalk that makes it disappear when you iron it?