drathe didn't rewrite the spell, he only fixed some errors in his localization that didn't agree with the original. In the past, I've puzzled over why the OP saw this spell as overpowered. I think I finally get what he meant--as spells affecting a target are cast at the target(s) rather than the area they are in, he must have figured the effect can't be separated from said target(s). Since movement is prevented beyond the limited bounds of the Cloak of Shadows tile while both attacking and spell casting are prevented within, the target can basically be considered neutralized by this "insta-kill." Of course, the spell is summoned on an area and not cast upon a target, thus the confusion. While drathe's explanation of the effects of the spell clears things up well, I think there are a couple of points worth revisiting.
1. The first issue is the technical problem of a Quest-objective end boss hiding indefinitely inside the spell, which would prevent the possibility of achieving the Quest objective. This is predicated on the notion that the duration of a Quest has but one of two endings--it's goals achievement or permanent abandonment by the Heroes. However, there is another way of understanding the meaning of the end of a Quest that better accommodates the Cloak of Shadows spell. To find a clue, the EU rules that originally framed this spell on p.14 under
Completing a Quest need to be referenced:
The character players complete a Quest successfully if they achieve the objectives
described in the parchment text which the evil wizard player reads aloud at the
beginning of the game. If they fail to do so, or if they are all players (and/or new
ones) can always attempt the same Quest again, but the evil wizard player always
starts a Quest with a full complement of monsters....
The blue text is a case of bad editing on MB's part, so the waters are a bit muddied. Still, "complete a Quest successfully" can be taken to mean a Quest can be completed unsuccessfully, then "they...can always attempt the same Quest again,...." Viewing the rules this way, a third type of Quest ending exists--an unsuccessful one that leads to a new attempt. This kind of ending is further indicated by the continuing text: "but the evil wizard player
always starts a Quest with a full complement of monsters...." A first start must be finished with an ending before a new start is possible.
Such rationalization of individual, unsuccessful endings is made simply to accommodate the wording in the Cloak of Shadows spell, so as to avoid the problem mentioned by drathe of a monster hiding in a Cloak of Shadows for eternity. I'd say the interpretation is worthwhile, as it better explains the reality of the game world. No self-respecting boss would forever limit it's existence by hiding in a spell effect. Like drathe said, it is a technical problem.
The NA rules are more explicit on p.14 under Ending The Quest:
...A Quest may be ended early by the players voluntarily returning to the stairway before completing the Quest, or by all 4 Heroes dying in their attempt to complet the Quest.
A Cloak of Shadows clearly only lasts for one Quest attempt using these rules, so a hiding end boss could later be killed in a second Quest attempt and the Quest successfully achieved.
2. The second issue with the spell is what spells can work within it. Phoenix already mentioned an area of effect spell such as Firestorm could affect figures within the spell tile. While this is true of a spell cast within a part of a room not in the Cloak of Shadows tile, a room entirely filled by the spell won't allow this.
Other spells further define the limits of Cloak of Shadows. Lightning Bolt could reach into such a small room completely filled by the spell effect as it is cast in a direction, not at a target. Hypnotic Blaze is area of effect, but it wouldn't extend into a Cloak of Shadows, as the illusion would be nullified by the lack of visibility. Summoning spells and Reanimation could also allow M/Z to place/affect monsters within the tile, though they still are prevented from attacking within. Movement spells such as Veil of Mist also function within a Cloak of Shadows if they are first cast from outside of the Cloak of Shadows.
When figuring spells that may be cast on himself by a spell caster within a Cloak of Shadows, ie. healing spells, precedence of rules must be applied. The EU rules state that a spell caster may always cast a spell on himself, but the Cloak of Shadows spell prohibits casting spells while figures are within the shadows. When such conflicts exist in games, specific overrules general. In this case, the specific prohibition of spell casting within Cloak of Shadows prevents casting a healing spell. The NA rules restrict casting to visible targets, so no healing spells with those rules, either.
Drinking any potion is still allowed, so it is still possible to benefit from a Potion of Healing. However, a healing spell scroll can't be used, as scrolls are used just like spell cards from the Game System.