I was watching a show on the food network and they used the powdered coloring to make a marbled effect in the fondant. They used it specifically for that purpose. I don't know if they had continued to knead it, if it would have blended all the way through. Maybe it would have and they just used it because it would take a lot longer to blend it into a solid color with powder vs. gel.
Sorry, I'm not much help.
It doesn't work very well. You tend to get a dull muddy version of the colour you want. If you only have powder could you try painting the fondant?
Quote by @%username% on %date%
%body%