Though it goes against my general energy saving ideals, I have heard the suggestion of using an incandescent bulb in closets and leaving it on for a few hours a day. The heat will help to dry things out a bit. I think this was a tip from Martha Stewart.
Can you leave the closet door open, at least at times? This might help too.
Other than that - cedar, though I think it will just cover the smell (and keep out moths), but not address the problem.
The desiccant pellets are a good idea. My parents have those in their coat closet.