FYI for everyone, I PM'ed Twist (the SOE dev who posted about bannable mod's) about SweetFX specifically and he replied to me with this:
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We would warn before any bans were associated with this. The problem with SweetFX is that it could be modified in various ways to achieve an advantage. As it is distributed now, it's relatively harmless.
We know some people use it, we would give warning before black listing it.
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I can post a screenshot of this if you would like.
So it sounds like at the moment SweetFX is okay to use and they would give a warning before banning people for using it.
UPDATE with Screenshot:
