I try to use the Chameleon spell on Wizardry 8 but it doesn't seem to be working. I use it WITHOUT the Light Spell but enemies still see me. Only reason I picked the spell was because I've read it was useful but they see me every time. Does it work for you?

Yes, it works for me. You notice this especially against enemies that spot you from long distances such as sorcererss. Chameleon does not work at short distances though, but it greatly reduces the distance that an enemy can see you (never with Light on).

Exactly. Pretty handy for closing the distance a bit more against spellcasters or ranged attackers without getting pulled into combat right off the bat. That means less turns spent running up to them in-combat and more time spent clobbering them.

If you're sneaky, operating in a more open area, and work the terrain to your own advantage you can sometimes avoid battles as well, but it's definitely not invisibility.

I do just as well being sneaky and can get close enough to most enemies. With Chameleon I get the same results not better, not worse.