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It's a function in MVTools v2. Found as a part of Fizick's amazing filter collection http://avisynth.org.ru/fizick.html Or the direct link here for the documentation and download link - http://avisynth.org.ru/mvtools/mvtools2.html Sorry I failed to mention before that I was using v2 - MSuper and probably many other features are absent in v1.
There are lots of great examples on there - it's where I got the function MDegrain2i2 and there are other examples of functions made specifically for progressive (non-interlaced) video. Also - I haven't tried using MVDegrain to remove rainbowing on progressive video. I imagine it would help if all you have is a progressive source, but I'm certain that filtering the chroma on the interlaced frames before performing the IVTC would achieve better results in removing the rainbowing.