I never thought of using wood glue instead of water. I thought this stuff reacted with the water to make the putty that you apply. If so, then wouldn't the glue get in the way of that? Seems like if you were going to use wood glue, you might as well just get saw dust and make your own mix.
But, if you've already tried this stuff with wood glue and it works, then I will have to keep that in mind!