Lost magnification under Mountain Lion
The feature is still present and you might be able to set it up again as follows according to this Apple Support page:


  For example, if you have a trackpad and used the default settings,
  zoom in by holding down the Control (^) key while you drag two fingers
  up on the trackpad. Zoom out by holding down the Control key while you
  drag two fingers down on the trackpad.


Check System Preferences => Accessibility => Zoom (under Seeing) to make sure that you have Use scroll gesture with modifier keys to zoom enabled.