I don't have an airbrush so my options are limited....but, the dry brush technique works really well. I just did this on a cake last week (my spongebob cake). I used white sparkle dust (it's a bit more grainy than the luster dust) and it turned out great....very sparkly.
In several of my other cakes I've done it wet with lemon extract.
Thanks for asking this question as I would like the answer to this as well. 
I'm sure one of the pros will answer this for you more comprehensively, as that's how I found the same answer to at least part of your question last week. Don't make the same mistake I made: Shimmer dust is not luster dust!! Oops, found out the hard way.
I think it's so confusing because luster dust DOES have different names. The cake supply store I finally found it at sells a brand which calls it "Sparkle Dust" but it is the same product as luster dust. Well wait, even that's not true! SLK just said there's a difference between the two. Augh! No wonder we can't get it straight! Confusing!
Shimmer dust is more along the lines of an edible glitter. It doesn't paint on. Mix it with alcohol like I did and it just turns into a matte colored goo. Try it with gold, you get a delightful shade of mustard. Ick.
So for the original question, based on all of these different darned dusts, it sounds like the answer is: depends on which effect you want, shimmer, sparkle or glitter effect? Shimmer dust will give you a sparkly glitter effect but it almost seems like luster dust will give you a sparkly shimmer effect . Wait, my head hurts.
Thank you all for responding. What I mean by shimmer, sparkle, or glitter, is simply this.... I haven't a clue as to how to add any of these to fondant. 
I also do not know if there are methods you can use and methods you can't. Are there products you feel work better than the others, are there techniques you prefer, etc. Real new to this, but I'm willing to learn anything you may have in the way of expierence. Even warnings from your mistakes, like ceshell shared.(Thanks for that ) I just don't want to be limited in what I can do with this medium. Thats why I'm picking brains. 
Thanks to All,
Gloria I
I love luster dust! You can mix it with an alcohol and paint it on to fondant. Or you can apply it dry for a more subtle sparkle. Wilton's shimmer dust will not work the same at all. It just turns into a clumpy mess if you mix it with alcohol, it can be used dry and add a glittery look like someone else mentioned. But if you really want a shimmery look use luster dust. If you look at my avatar you can see what it looks like when mixed with alcohol and painted onto fondant. That is what I did on the draping on this cake. You can also see the same cake in my pics if you like.
All knowledge comes useful to the detective...S.Holmes Ok I reading on now!
All a very fine powder
Luster (i.e. gold) and Pear Dust can be applied wet or dry. If applying wet use a high alcohol base so it will evaporate.
More like tiny grains---Disco is glitter
Disco,Pixie, and Shimmer
These cannot be applied wet and are for sprinkling.
Petal dust is matte and should be dry brushed on. It is non shiny powder.
More like tiny grains---Disco is glitter
Disco,Pixie, and Shimmer
These cannot be applied wet and are for sprinkling.
Disco and pixie dusts can absolutely be applied wet--but not with water. Mixed with a clear extract or alcohol--same as luster dusts. Wilton's shimmer dust cannot be mixed with a liquid as it will clump and make a mess.
If you are confident with your fondant applications skills you can also do the following:
Roll out fondant until it is almost as thin as you want it.
Dry brush fondant with super pearl or luster dust.
This embeds the luster dust in the fondant and
makes it appear to glow from within.
Finish rolling fondant to desired thinness
Apply fondant, luster dusted side up to cake and proceed as usual.
Notes: This method can waste luster dust, but the final effect is worth it. And if you have to re-roll your fondant, well enough said.
Thank You! this is exactly what I am looking for. The Products and Methods are very important for me to know. Since I am currently working with store bought Fondant ($$$) I need this information to help prevent unneeded loss of cost.
Expierences with mistakes are welcome also. I need to know what not to do or purchase as well.
Once again Thanks to all who have answered. 
Gloria I
In my earlier post I said I used white sparkle dust (it's a bit more grainy than the luster dust) and it turned out great....very sparkly.
I just found it at my cake decorating store a few weeks ago from CK....I've never seen it before. It is a cross between the regular luster dust (very fine and sparkely) and the Wilton shimmer dust. Some very fine stuff..some bigger glittery pieces. I saw it and couldn't wait to try it.
Before I found it though, I usually used luster dust (in super pearl, gold and silver) and dry brushed or used with alchol.
My suggestion would be to cover a cake dummy and divide it in sections. On each section try a different technique...you learn how to do each one....and figure out which one you like best.
More like tiny grains---Disco is glitter
Disco,Pixie, and Shimmer
These cannot be applied wet and are for sprinkling.
Disco and pixie dusts can absolutely be applied wet--but not with water. Mixed with a clear extract or alcohol--same as luster dusts. Wilton's shimmer dust cannot be mixed with a liquid as it will clump and make a mess.
I really don't see the point is applying it wet but to each there own. I was saying that you will not get a smooth paint consistancy with them as you would luster for instance.
Personal expierences are exactly what I need so thank you for including them in you post. I won't know what I'm up against untill it happens.
Gloria I
Thank you for all your suggestions and tips. They will remain valuable in my introduction to Fondant.
I really don't see the point is applying it wet but to each there own. I was saying that you will not get a smooth paint consistancy with them as you would luster for instance.
That is true because the pixie and disco dusts are "grainy". But I like to use them for concentrated sparkle spots. I used the clear gold pixie dust to paint my crown that is in my photos. I wanted a completely different sparkle look than luster dust. Also on the pillow cake (unfotunately you can't tell from the pic) I painted the pillow with purple luster dust mixed with purple disco dust. Again, a different sparkle look.
I really don't see the point is applying it wet but to each there own. I was saying that you will not get a smooth paint consistancy with them as you would luster for instance.
That is true because the pixie and disco dusts are "grainy". But I like to use them for concentrated sparkle spots. I used the clear gold pixie dust to paint my crown that is in my photos. I wanted a completely different sparkle look than luster dust. Also on the pillow cake (unfotunately you can't tell from the pic) I painted the pillow with purple luster dust mixed with purple disco dust. Again, a different sparkle look.
I tried to edit my earlier post to try to explain what I meant---Type sounds so different! LOVE your avatar by the way! I love looking at him!
I tried to edit my earlier post to try to explain what I meant---Type sounds so different! LOVE your avatar by the way! I love looking at him!
No problem! Yeah, I love looking at him too--have him plastered all in my office here at work including a lifesize picture stand of him... Yeah, I'm a little crazy! 
Great questions Penny, . Anybody else have answers, questions or problems that haven't already been posted? Seasoned C.C.er's would you like to shed some light on this subject, or maybe offer a Tip?
Sometimes its hard to ask others for helpbut I promise to ask you if you promise to ask me.
Thanks Again
Gloria I
It's hard to say how much exactly of alcohol to luster dust to use, I just put a little of each until I get the consistency of paint.
I've tried experimenting with luster dust, but I always think I'm doing it wrong.
How much extract/alcohol do you add? Does one work any better than the other (extract/alcohol)? What consistency should the mixture be?
I guess it depends on the look you are going for. If you do not have enough liquid, the dust tends to get clumpy and hard to spread. If you add too much liquid, then you may have to put on a ton of coats to achieve the look you want. It is finding that happy medium that allows you to do as few coats as possible to get the look you want and have it easily spreadable. I personally prefer vodka over extracts--more alcohol content the quicker it dries.
Thanks everyone. I have a better idea of the consistency I need. I wasn't as far off as I thought. For some reason, I had it in my head that because I wasn't getting the look I expected with one coat, that I was doing it wrong. It didn't even occur to me that it could take 2 or more coats, I just thought it was "decorator error." 
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