This is a Choice article on talc (hope I'm allowed to post this):

Is talc dangerous for babies?

Using talcum powder on babies seems to be falling from favour, with many experts recommending you use creams for nappy rash.
Online 01/04

What is talc?
Talc (hydrous magnesium silicate) is a soft greenish grey mineral found throughout the world. It’s crushed, dried and milled to create talcum powder.

In its raw form, talc is often contaminated with asbestos (a known carcinogen) and crystalline silica. In theory, contaminants are removed during the purification process but in reality some of these dangerous substances remain. Talc particles have the potential to enter and lodge themselves in the body -- reports focus on lungs and ovaries -- and cause tumours, lesions and other damage.

Accidental inhalation
Another safety issue relates to accidental inhalation of the powder: it’s said to dry out the lining of the lungs and can obstruct small airways, resulting in respiratory distress or even death.
Accidental inhalation of talc is a fairly common reason for people phoning a poisons information centre. A typical scenario involves an infant grabbing the talc container while having their nappy changed, and shaking the powder around before parents can stop them. Symptoms are flu-like (cough, fever, runny nose) and start about four to six hours after inhalation; hospitalisation may be required. Babies have died from the effects.

Talc and ovarian cancer
Recent studies have suggested a link between use of talc and ovarian cancer, with the risk of ovarian cancer up to double among those using talc (the lifetime risk of ovarian cancer for Australian women is approximately 1%). But other studies have found no increase in risk and say there’s no link.

Research supporting the talc-ovarian cancer link found that using talc on any part of the body elevates ovarian cancer risk, as does using it on sanitary products and underwear. So using it around baby’s bottom area probably isn’t a great idea.

It’s not clear why cancers form, although talc shares chemical similarities to asbestos (and before the mid-seventies, when many of us were babies, may even have contained asbestos). So if talc does cause cancers, they may be related to those resulting from asbestos exposure.

The verdict
Despite a lack of definitive evidence, it would seem prudent to avoid using talcum powder if there’s an alternative (such as a cream), especially on girls. If you use it, be careful — try to minimise airborne particles and keep the container out of your baby’s reach. A cornstarch-based powder may be suitable, but it’s still a risk if inhaled.