I see that vodka is used as a thinning/mixing medium for a lot of stuff having to do with painting on candy/chocolate/fondant. I know water doesn't work well because of the oil (fat?) in the material. Does vodka really work well? Is it like painting with real paint? Meaning, I can get smooth and opaque finishes?

IMHO Vodka works best for Fondant and is cheaper then extracts in the long run. Then when teaching my students I recommend getting Luster Dusts and Highlighters to a consistency of mercury and dab on instead of paint on. Dabbing seems to keep the paint from "rolling off". HTH

Ok, so I can take some luster dust, mix it with vodka until I have a sort of thick paint, then dab it on for highlights? What about using over a larger area? I'm doing a purse that will be grey fondant and I was going to use luster dust (and vodka?) to turn it more of a silver.

water isnt used because it takes so long to dry, and can change the consistancy of your icing. alcohol (and vodka cause its cheap, colourless, widely available, flavourless, and high alcohol % - but whatever you have will do) evaporates quickly so dries faster, and doesnt affect the icing.

as for painting it on, there is a real knack - i dont have it! you need to be patient and let it dry between coats, even brushing over the same area will smear it.

have you used the lustre dust dry? as it may work well enough on its own - and i find it much easier to apply evenly dry.

just allow your self plenty of time! and maybe have a practice before the cake.
xx

In that case I would purchase Chefmaster Edible Metallic Spray - Silver from Global Sugar Art. Easier to use.