/me tries to remember how she did things 20 years ago....
As I recall, we just did it all manually.
For drop shadows, we made a selection, copied it to the pasteboard, filled it with whatever shadow color we wanted, blurred it, and then pasted the original back in, and maneuvered it to wherever we wanted it above the shadow. Crude, but effective.
For type, of course, we just typed the thing twice, filling with two different colors and offsetting. Type back then was done in a special dialog box, and you didn't get to see what it looked like while you were doing it. It was all Chicago until you hit the OK button.
Emboss was much the same. It was all a matter of making a selection, copying, changing the still active selection on the desktop, pasting, and manipulating the pasted selection, repeating if the effect demanded it.
When PS 2 came out, and it had masks, and foreground and background colors, it was great. But I don't recall using the masks for anything like drop shadows etc., because I was so used to doing them the "normal" way, and it still worked.
The first I heard of Kai was the Stupid Kai Interface that was used on programs like Bryce and Poser. Then there were the Tools he made, which were brilliant. Too bad that he doesn't seem to grasp the fact that not everyone wants to play with the software. Some of us are trying to meet production deadlines, and would rather not "go into the Deep Texture Editor trying to get granite and emerge several hours later with glow-in-the-dark lark vomit" thank you very much. (That's a quote from memory, so probably less than word-for-word perfect, of something he said about Bryce, long ago.)
Fractal Designs Painter (now Corel Painter) was the first graphics program I know of that had layers. I still have the paint can that Painter 1 came in.

They didn't work as smoothly as PS Layers eventually would; for one thing, they had these odd yellow and black striped outlines when selected. But you could take something, paste it in, move it around, and then (gasp) still move it later if you changed your mind! It was mind-boggling.
When PS 3 came out with layers, it revolutionized everything. That, as I recall, was also about the first time that I because aware of the Channels palette, and started to use it.
If memory serves, I'd played with channel operations briefly, as mentioned in the manuals, but wasn't hideously impressed. Of course, at that point in my career, I was still earning my living with RL brush and pen, not computer, so my PS time was more playing around for the sheer joy of it than anything else.
But, when 3 came out with layers, I started to do some of my composition work there, instead of with multiple scraps of tracing paper. It was easier to move things around and see what I was actually getting.
So, yeah, Kai is a genius, and I respect him deeply. But the man should never, ever, be allowed to design an interface.

I use Advanced Blending for lots of things, but what I do there more than any one other thing is enabling "Layer Mask Hides Effects" so that the layer style doesn't extend past the masked portion of the layer. I also do things with the Knockout.
I use Blend If constantly, for all kinds of things. I mean, it automatically hides part of the layer, based on value or color, and it blends the hidden part in or out. It's fantastic, and yet so often overlooked.
I should do a tut about this stuff, huh?
By the way, as long as we're doing a history lesson, if anyone wants to see what PS used to look like, take a peek at
http://www.guidebookgallery.org/apps/photoshopto see screen shots from PS 1.0 through CS2. (I found it while trying to jog my memory.)