1. Iraq definitely did have chemical weapons at the time of Gulf War I
2. Iraq didn't use them
3. I think they probably would have used them, even within their own borders, if the US invaded Iraq proper (a submarine crew is perfectly willing to sacrifice portions of their sub to flooding if it will save the overall submarine)
4. Iraq having chemical weapons was either a deterent to invasion, or at least not a threat worth the cost of invasion
5. The most valid reason for believing Iraq hadn't destroyed all of their chemical weapons was Iraq's fear of Iran. In a lot of ways, it would have been illogical for Iraq to comply. It would be hard to hide all traces of chemical weapons if Iraq had them, but complete, undisputable proof of destruction was withheld by Iraq. Real evidence was thin, even if one were predisposed to believe Hussein wouldn't dare comply.
What changed between 1991, when an Iraq with chemical weapons actually invaded a neighboring country and 2003, when a militarily crippled Iraq lacked the ability to invade a foreign country? Why was the threat in 2003 worth an invasion while the threat in 1991 wasn't?
The threat in 2003 was less. On the other hand, in 1991, Hussein had the Kurds and Shiites under complete control. At least part of the sanctions, especially the no-fly zones, were to weaken Iraq's ability to control the opposing ethnic groups in his country. While the threat in 2003 was less, the opportunity for change was greater.
The problem with that idea is the US was running the risk of starting an ethnic civil war that wouldn't end for decades (in fact, being bogged down in a never-ending civil war was a little more frightening than Iraq's chemical weapons, even in 1991 - or, alternatively, the fear that civil war would create such chaos that Iran could invade at will).
I don't think the threat of chemical weapons played a big part at all. Same risk as in 1991 (never-ending civil war), but at least a better opportunity for a positive outcome than in 1991.
Did I mention the risk of never-ending civil war? Over 120 civil wars in the world since the end of WWII, and South Africa, Mozambique, and (possibly) Guatemala are the only three that were resolved by opposing groups sharing power*. All the rest were resolved by one group defeating the other militarily or weren't resolved at all (50+ year civil war in Columbia, 60+ year civil war in regions of India, cease fire in Bosnia, cease fire in Korea, etc).
That was a huge risk!
* - To be considered over, generally 5 years without fighting is arbitrarily set as meaning the civil war is really over. Technically, using that guideline, 6 civil wars were ended through peaceful power sharing. Unfortunately, three of those resolved "successfully" were Lebanon, Sudan, and Zimbabwe - since fighting stopped for over five years, the resumption of fighting was considered a new civil war instead of a continuation of the old.