Wood chips from a pet store? If your talking about those cedar hampster chips....lol, sorry to say but take those out. You really shouldnt use anything as a substrate except for maybe some paper towels, or a removable/cleanable carpet.
I just read where you meantioned that he is in a tank....that is no good either. Chameleons will see their reflection in the glass and it will stress them out like crazy. You should either build him a new screened cage or buy one.
One thing that you will learn about pet shops, is that they are just after your money....they dont care rather your pet lives or dies after its guarontee. You should tell them what you need....not the other way around.
I would agree with the above, that if you can't figure out what the problem is, take him to a vet. He could have something stuck under his eyelid, or have a scratch on the eye itself. Obviously neither of these can be resolved at home...so a vet would be the only choice.