I used unsweetened Kool-aid to tint and flavor a cake for my niece. She wanted a grape cake (yuck). It wasn't too bad for a grape cake I guess, and it was a pretty shade of lavender inside. I might try this with another, more suited to cake, flavor to see how it works. Maybe raspberry or pink lemonade would taste better. ;-)
I have also used red and green (Americolor gel) to tint a white cake for Christmas. Then I used the zebra striping technique to layer them together. It was pretty and no adverse taste.