I wrote an article for American Cake Decorating, May/June 2015 about disco dust and the edible alternatives to it.
In preparation for writing the article, I did a lot of research on disco dust. I emailed 3 large US suppliers of the dust to confirm that it's inedible plastic craft glitter and not for use on food. I also had a back and forth with an FDA agent who was very clear that disco dust is not an approved food additive [not GRAS-- Generally Regarded As Safe] and that using it on food can result in an enforcement action.
Some people believe that using disco dust on food is a "choice". A choice is what kind of butter you use or whether you like chocolate cake more than vanilla. It's not a "choice" when it's defined as wrong by the manufacturers/suppliers and the FDA.
I know that many "popular" decorators say it's OK--it's not a lot, it all comes out, no one they know has ever gotten sick, etc. They're wrong. No one knows how much is too much, no one knows if it all comes out, and there is a Cake Central thread from several years ago that cites a direct injury to someone who had a bowel disease and ate something with disco on it. There is no reason to believe that every, tiny sharp particle makes its way out of the human gut. And, very few cake decorators are also pathologists or internists. On the most basic level, we don't feed people plastic and we should worry about a person who chooses to eat plastic.
There are completely edible alternatives available: cake sparkles [gum arabic], sanding sugar, or gelatin glitter.
If someone is going to eat it, then ALL of the ingredients must be edible. That's certainly the FDA point of view.
If you have a chance to get the issue--they have a good deal for a digital subscription right now--there's a lot of great information about using FDA approved edible luster dusts, too.
This is a link to ACD "extras" that has information on recipes and tutorials for various types of edible glitter.