Does the Maddening Darkness spell affect creatures in its radius if they have 9th-level magical light illuminating it?

Question

The description of the maddening darkness spell (XGtE, p. 160) says [emphasis mine]:

Magical darkness spreads from a point you choose within range to fill a 60 foot-radius sphere until the spell ends. The darkness spreads around corners. A creature with darkvision can’t see through this darkness. Nonmagical light, as well as light created by spells of 8th level or lower, can’t illuminate the area.

Shrieks, gibbering, and mad laughter can be heard within the sphere. Whenever a creature starts its turn in the sphere, it must make a Wisdom saving throw, taking 8d8 psychic damage on a failed save, or half as much damage on a successful one.

If I cast continual flame at 9th level, it should produce magical light capable of illuminating a sub-sphere of the maddening darkness.

1. I posit that if I am standing in the sphere of maddening darkness when it was originally cast and also am exposing that 9th-level continual flame to light the darkness, then I am no longer in the sphere's area (the darkness) and I would not be affected by the spell.

2. I can see a strict RAW reading that, technically, I am still in the original radius of the spell and because of that, would be affected. It could be true that the intent is only that my continual flame would light the darkness and not remove any maddening effects.

   Which of the above interpretations is true?

Answer 1

RaW, yes, it still affects them.

The darkness and the damage are separate effects of the spell, whose area is a 60ft sphere.

Magical darkness spreads from a point you choose within range to fill a 60 foot-radius sphere until the spell ends. Nonmagical light [...] can't illuminate the area.

The darkness fills this spherical area-of-effect. Light within it just illuminates the area, it doesn't affect the sphere.

Shrieks, gibbering, and mad laughter can be heard within the sphere. Whenever a creature starts its turn in the sphere [...]

And creatures within the spherical area-of-effect take damage. Notice how it doesn't say within the darkness, or starts its turn in the darkness. The spherical area of effect is always there. It can be dark and blinding, or it can be illuminated by a strong spell. But it will damage enemies regardless.

RaF, I would stop the damage in illuminated areas.

The players just used a 9th level spell, and are now restricted movement-wise (they can only be where the light is). It is a cool counter-strategy for players, and a 9th level slot is very expensive anyway. Rule of cool, reward your players!

Answer 2

Your last guess is "technically" true.

If we look at the RAW, which you should always do to start, we can see that the sphere contains the maddening effects, not just the darkness.

Shrieks, gibbering, and mad laughter can be heard within the sphere.

Thus, when you cast that spell, continual flame would light the darkness and not remove any maddening effects.

This does, however, go against logic reasoning since the 9th-level Continual Flame would enlighten the darkness and take away the maddening fear of the unknown. So it comes down to a classic case of "What do the players want?", "What does the DM want?" and "Can we find common ground?".

If you can't, use the RAW. You could also rule advantage on the save when it's lit up since that takes away a big part of the fear it would cause.