Sorry for the delay on spotting this.
I'm fairly sure that cloth still works in current, but you do need to enable the PhysX module when compiling the engine in order to utilize the PhysX stuff(same with Bullet) as by default the built-in stock physics are the default. If you do that, then you should have access to the PhysicsCloth(PxCloth, I believe is the specific class) object to use.
If you haven't gotten the PhysX lib set up yet, then you can follow the wiki article here: http://wiki.torque3d.org/coder:physx-setup#toc1
If that's out of date at all, just let me know.