While I hadn't thought of marshmallows or jello, both those cost more- and I'm not sure jello can get rigid enough to stand up to being fired.
Might have to buy a bag of miniature marshmallows and give that a try, though.
However, the ice is solid enough to actually target practice with- it has enough energy to knock down pop bottles or cans. I'm not sure marshmallows or jello shots ( ) would do it.
(There's actually a YouTube video where a guy shoots a slug of ballistic gelatin at a block of ballistic gelatin. Let's just say it doesn't make a very good projectile. )
There's also the issue of residue in the barrel- on the SMG, since the barrel isn't easily removable, it's tough to clean out any gunk, like smears of marshmallow or gelatin.
Water isn't all that good for it either, but actually, I could see the ice slugs cleaning out old paintball shell gelatin, and as long as you hit it with some WD-40 afterwards, should wind up cleaner than before.