Is it permissible to say "wa rahmatullahi wa barakatuh" (and the mercy of Allah and His blessings) when returning the greeting to someone who has been explicitly cursed by a Quranic verse or a Hadith?

It is not permissible to curse a specific Muslim. It is permissible to return the greeting of peace to those who commit sins by saying, "Wa rahmatullahi wa barakatuh (And the mercy of Allah and His blessings be upon you)," as a supplication for them. It may be legislated to refrain from returning their greeting if that deters them from evil. As for if the Muslim intends the People of the Book, scholars have differed on the permissibility of returning their greeting with "Wa alaikum assalam (And peace be upon you)" or "Assalamu alaikum (Peace be upon you)" without mentioning mercy. Some have gone to the extent of permitting returning their greeting with the like of what they greeted with, as a matter of justice.