i think it would probably spread like any cold or flu, though the whole being passed by use of magic idea is also somehwat intriguing(sorry. can't spell worth my life)
oh, and sanguinius, i like your ideas, but it seems that you, and probably some other people as well haven't been properly informed of vharzyym's part in this whole thing, judging from what you posted. the way i think we have it set up is that vharzyym alchemists create the curse, virus, whatever, and give it to a group of Connlaothan extremists, telling them that it's a weapon that could destroy all magical things in the world. (the extremists don't know who gave them the curse, however, having met quickly in some dark alley way or something.) the virus spreads, causing mass chaos and death, and eventually spreading to non-magical beings. (not yet decided i don't think)
the following is conjecture on my part as to what they will do once the crisis is underway:
vharzyym takes advantage of the kingdoms' weakened states by either attacking while they're down, or offering a vaccine or blessing or whatever you want to call it, to the highest bidder, giving themselves mucho brownie-points and control with the government.
i hope that cleared up some fuzzyness for some of you as to what is decided so far.