My thoughts on the Pao sickness: yes, it's an example of sexism as the male characters have to explore a dungeon by themselves and then the female characters don't get to do anything to help out (the boys make it back to the village right when the girls about to go out looking for them, and Fresca's awkward talk of child-bearing doesn't help matters). Does it do anything to diminish Jessica and Mia as characters or dispel the idea that they are examples of positive female characters in a video game? No. Lunar 1 may have sexist elements or tidbits, but I'd be hesitant to write it off as "incredibly sexist by modern standards" (that's an assessment I would reserve for a game that treats its women as objects or rewards, like Ride to Hell Retribution... a game made in 2013).
They got sick due to an evil magic song, something beyond their control. It wasn't due to competence or weakness. Also, it's sparingly brief, and Jessica and Mia go back to being their capable selves immediately once it's done. Mia actually starts her growth into a capable leader of the Magic Guild afterwards. You could definitely argue that it's contrived or weak writing, maybe done just to make the Black Dragon Fortress harder without Jessica's healing and Mia's more versatile magic (powerful spells and helpful buffs, the latter which Nash lacks). And Alex and the other guys weren't just fighting to save Mia and Jessica, but also an entire village full of both male and female plague victims. They just had the misfortune of getting caught up in the crisis. I think if the developers had made Fresca a fifth party member, it would have helped to remedy the gendered implications.
If Mia and Jessica had been kidnapped and then made no attempt to free themselves and simply waited for the guys to save them, then I could see an argument about them being "damsel'd" or "chickified" to use a TV Tropes term more valid. But as it is, they were in no condition to help themselves or anyone. In fact, the one time the villains (namely Xenobia) do snare the two girls in a trap, Jessica uses her powers to break herself and Mia out of it and get away.
I do have issues with the scene for reasons previously mentioned, and I do have to wonder why they preserved the Pao sickness plot-line for all the remakes when Lunar 2: Eternal Blue and its PS1 remake never did anything of the sort to Lemina and Jean.
Overall, I would say the girls are treated as equals to their male counterparts, although I would say Lunar 2 did it better. Even Luna got very good development and characterization, which is more than I can say for most damsels in damsel-in-distress stories. On a side note, Jessica is actually my favorite character in the whole game, due to her spunky, steadfast, and optimistic personality. And I like that they made her a tough secondary damage-dealer and proficient in the operation of flying machines and ships
"Good characters of either gender will show occasional vulnerability in some form."
I definitely think Nash found himself in a vulnerable position when the Magic Masher armor began acting out of control and his friends had to save him. And I do like how Lunar 1's male characters show emotion, as opposed to being stone-faced badasses. If there's one detail I do appreciate about the Pao arc, it's that Kyle and Nash do show genuine concern when Jessica and Mia fall ill. What other examples of male characters showing a vulnerable side in Lunar 1 can you think of?
"I should also add that Mia and Jessica later return the favor when they snap Kyle and Nash out of their self pity later in the game."
There's also the fact that Jessica had been working tirelessly to heal the other party members since they made it back to Mel's mansion in Meribia, following their defeat at the hands of Ghaleon. Nall even mentions that they owe her their lives.