The wishing lever – what are the blue drops on ground

The Bad Weapon and Hands Full (the debuff for wielding two weapons without the Dual Weilding skill) do not affect any of your statistics, but instead cause a direct percentage loss to your damage output when using melee weapons.

Bad Weapon reduces damage by 28%.
Hands Full reduces damage by 36%.

I'm not sure how these stack (whether it's a straight 64% drop, or compounded ~54% drop).

_{See the Bad Weapon page on the wiki if you want confirmation.}

Nope. Your fiery breath will not consume items on the ground. Feel free to roast that diggle to your heart's content. Your valuable lutefisk will be fine.