Looking at the disassembled dump of that function using the nwnnsscomp compiler (I don't have access to the toolset compiler right now), it shows a couple of things. First, the precedence of the "|" operation versus the "!=" is not what I expected so the details of my explanation are not correct (my bad), but the result is the same.
What it is actually doing is the != first which leaves a value of 0 or 1 on the stack depending on whether the effect type is or is not EFFECT_TYPE_BLINDNESS. It then does the bitwise or (INCORII) with each of the following constants, rather than what I said which was doing all the bitwise ors first and then the inequality.
After all the ors it then skips the removeeffect if the top of the stack value is zero (JZ). There is no way I can see for that value to ever be zero so I stand by what I said, the code as written should not work.
It will be interesting to see what the toolset compiler produces for this script.
Here is what my compiler produces:
00000008 42 000001A9 T 000001A9
0000000D 1E 00 00000008 JSR fn_00000015
00000013 20 00 RETN
00000015 02 06 RSADDO
00000017 05 00 00EE 00 ACTION GetPCSpeaker(00EE), 00
0000001C 01 01 FFFFFFF8 0004 CPDOWNSP FFFFFFF8, 0004
00000024 1B 00 FFFFFFFC MOVSP FFFFFFFC
0000002A 02 10 RSADDEFF
0000002C 03 01 FFFFFFF8 0004 CPTOPSP FFFFFFF8, 0004
00000034 05 00 0055 01 ACTION GetFirstEffect(0055), 01
00000039 01 01 FFFFFFF8 0004 CPDOWNSP FFFFFFF8, 0004
00000041 1B 00 FFFFFFFC MOVSP FFFFFFFC
00000047 03 01 FFFFFFFC 0004 CPTOPSP FFFFFFFC, 0004
0000004F 05 00 0058 01 ACTION GetIsEffectValid(0058), 01
00000054 1F 00 0000014D JZ off_000001A1
0000005A 03 01 FFFFFFFC 0004 CPTOPSP FFFFFFFC, 0004
00000062 05 00 00AA 01 ACTION GetEffectType(00AA), 01
00000067 04 03 00000043 CONSTI 00000043
0000006D 0C 20 NEQUALII
0000006F 04 03 00000027 CONSTI 00000027
00000075 08 20 INCORII
00000077 04 03 0000002F CONSTI 0000002F
0000007D 08 20 INCORII
0000007F 04 03 00000012 CONSTI 00000012
00000085 08 20 INCORII
00000087 04 03 00000029 CONSTI 00000029
0000008D 08 20 INCORII
0000008F 04 03 00000017 CONSTI 00000017
00000095 08 20 INCORII
00000097 04 03 00000018 CONSTI 00000018
0000009D 08 20 INCORII
0000009F 04 03 00000021 CONSTI 00000021
000000A5 08 20 INCORII
000000A7 04 03 0000002B CONSTI 0000002B
000000AD 08 20 INCORII
000000AF 04 03 0000002D CONSTI 0000002D
000000B5 08 20 INCORII
000000B7 04 03 0000001C CONSTI 0000001C
000000BD 08 20 INCORII
000000BF 04 03 0000000D CONSTI 0000000D
000000C5 08 20 INCORII
000000C7 04 03 00000020 CONSTI 00000020
000000CD 08 20 INCORII
000000CF 04 03 0000001A CONSTI 0000001A
000000D5 08 20 INCORII
000000D7 04 03 0000000B CONSTI 0000000B
000000DD 08 20 INCORII
000000DF 04 03 00000019 CONSTI 00000019
000000E5 08 20 INCORII
000000E7 04 03 00000047 CONSTI 00000047
000000ED 08 20 INCORII
000000EF 04 03 00000031 CONSTI 00000031
000000F5 08 20 INCORII
000000F7 04 03 0000003D CONSTI 0000003D
000000FD 08 20 INCORII
000000FF 04 03 0000001B CONSTI 0000001B
00000105 08 20 INCORII
00000107 04 03 0000004F CONSTI 0000004F
0000010D 08 20 INCORII
0000010F 04 03 0000001F CONSTI 0000001F
00000115 08 20 INCORII
00000117 04 03 00000033 CONSTI 00000033
0000011D 08 20 INCORII
0000011F 04 03 00000022 CONSTI 00000022
00000125 08 20 INCORII
00000127 04 03 00000037 CONSTI 00000037
0000012D 08 20 INCORII
0000012F 04 03 00000025 CONSTI 00000025
00000135 08 20 INCORII
00000137 04 03 00000052 CONSTI 00000052
0000013D 08 20 INCORII
0000013F 04 03 00000035 CONSTI 00000035
00000145 08 20 INCORII
00000147 04 03 0000001D CONSTI 0000001D
0000014D 08 20 INCORII
0000014F 04 03 0000004D CONSTI 0000004D
00000155 08 20 INCORII
00000157 04 03 00000023 CONSTI 00000023
0000015D 08 20 INCORII
0000015F 1F 00 00000021 JZ off_00000180
00000165 03 01 FFFFFFFC 0004 CPTOPSP FFFFFFFC, 0004
0000016D 03 01 FFFFFFF4 0004 CPTOPSP FFFFFFF4, 0004
00000175 05 00 0057 02 ACTION RemoveEffect(0057), 02
0000017A 1D 00 00000006 JMP off_00000180
00000180 03 01 FFFFFFF8 0004 CPTOPSP FFFFFFF8, 0004
00000188 05 00 0056 01 ACTION GetNextEffect(0056), 01
0000018D 01 01 FFFFFFF8 0004 CPDOWNSP FFFFFFF8, 0004
00000195 1B 00 FFFFFFFC MOVSP FFFFFFFC
0000019B 1D 00 FFFFFEAC JMP off_00000047
000001A1 1B 00 FFFFFFF8 MOVSP FFFFFFF8
000001A7 20 00 RETN
Edit: The code produced by the toolset compiler is effectively the same as the above.