Typos. You're calling undefined variables %n.word and %t.bnick.

try this (untested)

Code:
 on *:text:!listbadword:#:{
  if ($nick isop $chan) {
    var %t.bword = $ini(sysbadword.ini,$chan,0)
    while %t.bword > 0 {
      set -u0 %n.bword $addtok(%n.bword,$ini(sysbadword.ini,$chan,%t.bword),32)
      dec %t.bword
    }
    notice $nick %n.bword
  }
}

hth
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LonDart

LonDart