Edit: It's still sold! Here's one link I found for it:
http://www.cascadeschoolsupplies.com...mNumber=120568
It's a starch product too, which is why it work for my freezer paper applique.
Just recently I bought a jar of Elmer's Washable School Paste in a container exactly like the one in the link above. It has a different label. The back says it "washes out of clothes with soap and water, even after drying."