On one of the threads someone said you could use vodka or evercleaar with the gel colors, just like for gumpaste! This is the same technique you would use for luster dust, etc. I have painted on fondant before, but needed it dark and used the gel straight from the bottle!
The small amount of water that would be used in painting should not be disastrous to your fondant. I do use alcohol though because it dries faster. If you need a second coat with water based, you will have to wait longer for the first coat to dry. I have painted with liquid food colorings no problem.
Now that I have airbrush colors I mostly use those to hand paint. I used Kroma-colors by Kopykake to paint my most recent Power Ranger cake. It's already at the right consistency to be a good paint...I have trouble sometimes if I have to make paint out of gel color.
I just recently did this for the first time with just straight food color and it was harder than I thought it would be. In order not to get a streaky effect, it seemed like I had to use too much color. After I had the whole design painted I went back over it with vodka and thinned it out as much as I could. Also, it did not dry. Even the next day it wasn't totally dry and wound up being pretty messy. Thank goodness it was just something I wanted to try out, and it wasn't anything important. Good luck!
Crissy 
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