How effective would it be? Presume that the nitrous oxide is freely available to the user (e.g. "magically" [hand-wave] produced) and that they are immune to any effects. How far would it really disable/harm?
It doesn't make you laugh to death like the gas The Joker makes. Part of the way it works is it reduces the amount of oxygen getting into your blood so if there was a high enough percentage in the air you could cause brain damage. But this would either have to take place in a confined space or have you dump a lot of gas on an area to be effective this way.
In short, theres absolutely better weapons you could use but if you want to gas people in a room GlaDos style the option is definately there.
I got my info from here: http://www.treatment4addiction.com/drugs/inhalants/nitrous-oxide/
According to what I can read online, the effects of laughing gas strongly vary with dose: they go from inhibition of fear or euphoria to numbness or sleep.
While it is desirable to have an incapacitated enemy, an enemy with a diminished sense of fear or euphoria is way less desirable, for obvious reasons.
This is probably why it has not been used as chemical weapon.