No, I never try frozen marshmallow as an alternative for ice packs for my children's use. It sounds cool though and I will try this alternative with my children. What I do normally when my kids have bump on head or other area, I will use ice cube and wrap in face cloth for cold compression on the bruise. The coldness is effective to numb the pain and reduce swollen.
It does sound like a useful method -- the soft marshmallows which have been frozen could provide a comfortable relieve for any kiddie boo-boos. I've never tried it myself but it sounds feasible. For alternatives to ice packs, I usually use frozen corn kernels or frozen mixed vegetables. I think they distribute better when placed on the skin.
I haven't personally used it on my kids (mashmellows don't last in our household) but my sister and I used to freeze our mashmellows before having them. They don't totally freeze and don't hold much cold so I can see how it would be pretty handy if baby gets a boo-boo! Plus, you can eat it afterwards lol