I copied and pasted the above custom function text into Filemaker Pro Advanced 12 on a Windows XP machine and tested a number of different words and word lists, both with and without wildcard entries.
each time, I got the expected 1 (true) or 0 (false) result.
ps. While it makes no difference on the results returned, you can simplify part of your expression by using getValue instead of LeftValues:
libRawWord = Substitute(GetValue( dictList ; 1); " " ; "")
libRawWord = Substitute(LeftValues( dictList ; 1); "¶" ; "");
libRawWord = Substitute(LibRawWord; " "; "");