Is it blocked by shields? Does it dissipate cloak? Is it reflected?
Well it's an effect so shields won't block it. I suppose it will remove cloaksince it has no target and I don't think it should be reflected sicne I would count it as physical damage since it's a weapon.
Just because it is a mass effect doesn't mean it has to remove cloak. For instance, unupgraded thunderstorm does not remove cloak. This is more of a balancing decision on your part and there are pros and cons... I'm still not sure why plague removes cloak thematically... but it helps make it valuable as a counter in mono-death decks.
As for shield bypass, that has some warrant if you are saying this is the weapons active skill.
Yeah I agree thats why the name is a bit wrong. The ability could be named pulsating lava while the card something else. And I do believe that a card which sends out lighting every turn could be counted as a weapon, I mean Owl's eye sends out arrows every turn and that counts.
Maybe call it "Magma Caller's Staff" or something like that?
As a closing point on this, note that the player is an elemental and not necessarily a humanoid, so there is some basis for allowing "non-traditional" weapons. But that would take some clever work to make it believable for players.
Also, why are weapons restricted to physical damage?
There was no other "type" of damage when they were first added.
Spell damage has only been in place for the last couple of patches.
So I suppose there really is no reason thematically, but it does make them a little easier to balance when there are shields that can counter them.