Dr_Zinj: possibly it survives as a regionalism? I've lived more than 45 years in New England, have six kids, i think every one of 'em has had a bout with the things at least once, and never EVER heard "cooties" for them. Lice, headlice, sometimes "bugs" -- never cooties. (OK, I confess, wife and me both, too.) O, Collinte, nits are technically the eggs -- thus "nitpicking." 'K I gotta quit, I'm getting all itchy just talking about the little bassids.
Lice are lice, and cooties are cooties; they may have at one time been synonymous, but that was long ago in the distant past. If your kids are calling lice "cooties", they probably picked the term up from an old person. I am over 50 and cooties have always been imaginary. When kids got lice, well they got lice, or sometimes 'nits'.
Hardly "obsolete as a common slang or dialect term for lice." Friends, either you're incredibly naieve, or you've been incredibly lucky. I would know, having spent more than enough time delousing my kids after they caught them at school. And every one of those kids were calling them cooties.
By the way, Hasbro Games/Milton Bradley apparently still produces and sells Cootie. http://www.boardgames.com/cootie.html