Maybe much less potent in killing instantly (ie in combat use), but what about long-term low-dosage exposure?
> possibly going up the food chain (does that happen?)
Bio-accumulation in general is very real thing, and imho the most worrisome aspect of this situation.
As for the hydrolysis product of mustard gas, thiodiethanol, it's not very toxic. The MSDS claims acute toxicity in rates starts around 6.5g/kg. So a human would need to consume ~500g in order to see toxicity.
Also, thiodiethanol is quite reactive itself. It would likely be oxidized to the carboxylic acid. Wouldn't surprise me if bacteria could metabolize it.
This abstract suggests that bacteria are utilizing the thiodiglycol that the mustard gas ends up releasing into the water:
http://www.ncbi.nlm.nih.gov/pubmed/19481794
This one suggests that the thiodiglycol is still harmful:
http://www.ncbi.nlm.nih.gov/pubmed/16393936
But that it isn't nearly as harmful as the mustard gas.