This article is from the Model Rockets FAQ, by Wolfram von Kiparski with numerous contributions by others.
From email@example.com (Jack Hagerty):
Just go down to your local building supply store and get a bale of
cellulose wall insulation. This is just shredded newspaper treated in
the same fire suppressant [as Estes recovery wadding]. A $5 bag will give
you enough wadding to last years!
From MASSEY@TRAVIS.llnl.gov (Warren Massey):
I have found crepe paper to be a must more cost effective alternative.
It comes in either sheets or rolls (I prefer the sheets) in a variety of
colors and is every bit as flame retardant at a fraction of the price. I
can even get several flights off a single ball of wadding. It is somewhat
stiffer than the tissue but I've never found that to be a drawback.
A piston ejection system works well on rockets of BT-60 size or greater.
Pistons eliminate the need for recovery wadding of any type. Plans
for a D powered rocket using piston ejection may be found on sunsite.unc.
edu in the file 'pub/archives/rec.models.rockets/PLANS/dust-devil.ps'.
The rocket was designed and drawn by firstname.lastname@example.org (Joe Pfeiffer).
From: email@example.com (Bob Kaplow)
Use a baffle system (I posted this to RMR a while back) to eliminate
the need for wadding. This also provides the benefit of a third centering
ring (see Pete Olivila article) as part of the baffle ssytem. Stainless
steel mesh can be used to trap hot particles, but be careful that ejection
caps don't plug it up.