I checked out Forges at Footscray (or as I call it, Dimmeys!), they have a great Haby section now, I picked up one of these for $2.15. I'll give it a go, never have much luck with tailor's chalk.
Also checked out t-shirts in Savers. Found a red Dora one for my little miss, and a few for friends boys.
Also a pile of Bonds lycra ones (the non-strtch out of shape kind). These are the best at iron on pics and appliqued fronts, I find. Even an Osh kosh I may sew on.