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Formula is permitted. From the TSA website:
Declare larger liquids. Medications, baby formula and food, breast milk, and juice are allowed in reasonable quantities exceeding three ounces and are not required to be in the zip-top bag. Declare these items for inspection at the checkpoint.
All this info is available at http://www.tsa.gov/311/
Parent of the teether should have been allowed to keep the food even though he or she erred in not declaring it. (Though I can see why they took the water. Bottled water is available in the terminal and on the plane -- there's a less compelling case for making exceptions on that.)
I agree that some of the TSA rules are dumb, and some of the personnel are not the sharpest tools in the shed. But it seems an awful lot of the folks complaining here didn't do their homework, didn't know the rules, and then are pissed that TSA didn't make an exception for them.
Exceptions require discretion. And if you really think TSA workers are so stupid, do you want them using their discretion?
I have a friend who travels with liquid medication. He has it labeled clearly, always declares it, and has never had a problem. For safety's sake, he printed out the rules from the TSA website and carries that with him.
If it's something important, like your medication or your baby's food, it seems worthwhile to know your rights.