I was just looking at this spell and my interpretation is this:
Grey Wizard is in a combat situation and his turn comes up. He has extra power available.
Grey Wizard casts the spell and pumps 3 extra power in it to make it last 3 more rounds (one extra power due to his Order talent)
Even if standing out in the middle of nowhere or engaged with an enemy, (Right in front of his eyes! since it mentions add one purple die if you attempt it), the character becomes shrouded in shadow, because it says "he becomes shrouded in shadow", and this is BEFORE he performs a free manoeuvre. He can do anything he wants with the free manoeuvre, like draw a sword, or move.
"The shadows conceal you from prying eyes (Even if the eyes are engaged with you)" there is no mention of this failing or allowing any chance of someone seeing the grey wizard. It's a done deal and you are pretty much invisible. It only becomes a skill TEST when the spell fades, and you can possibly roll stealth.
Since the requirements do not mention needing to be in shadows, it seems to me that the character has covered the area in shadow, similar to his rank 1 Pool of Shadows, but not hampering vision, only allowing him to become one with the shadows (invisible).
As the recharge ticks down, the character remains concealed and can even launch attacks for the next 3 rounds (It does not say anything about the spell breaking if you do)
The bane effect: The shadows cast over the area (that do not block vision, only allow you to be invisible) leave thicker black motes of shadow. Even these do not let them trace your location, it only lets them know magic is involved).
1. The bane effect sounds like a situation where shadows were already available, and no visual change happened other than your character is suddenly gone. The black motes let them know that it is magic. But if you are engaged with someone and vanish in front of them, that is obvious enough. So this must hurt you more in an out of combat situation. Like your character runs around a corner and as they go around to look for him, they only see a trail of black motes. If they didn't see the black motes, they could think you simply got away, but you are standing right next to them.
2. To me, shadowcloak and Shroud of Invisibility (rank 2) are pretty much the same spell, but Shroud of Invisibility lasts longer by default (6 recharge instead of 1) , it will not leave behind signs that a spell was cast, it has a comet effect that is teleportation, it gives your a fortune die on attacks, it has no penalty for being engaged with an enemy (poof, you are gone), and if you did the reckless side, you can conceal an engaged friend.
3. Why would you ever use Shadowcloak again, once you got Shroud of Invisibility? Less power, slightly easier... plus it seems to me that Shadowcloak needs shadows available, and if they are not, conjures a shadow over the area, while S of Invisibilty does not seem to, you just go invisible. This may be why they get a chance to detect you in that state?
4. House Rules: I could easily see GMs applying the same chance to detect the character in Shroud of Invisibility to Shadowcloak, but this would make the two powers even more similar and weaken Shadowcloak. If there was a clear definition of "Concealed", it would clear things up great .. wish it was a condition card. Or perhaps Shadowcloak should have the limitation that you cannot attack, but it should mention that.