There is a sword you can get from a guy in the black pits, who guards are throwing firebombs at (he's hiding in the cellar), it has all this dialogue about 'being an evil blade' and 'feasting on the blood' and whatnot, but as far as I can tell it's just a regular blade.
If there is something hidden with it (maybe I need to kill innocents with it?), maybe add in a single line of dialogue with a color-change on the item, something along the lines of "The weapon emits an aura of pure malice...it feels as if it hungers, for the blood of the innocent. Perhaps if we feed it that blood it shall grow in power...?"
If whatever was being planned simply wasn't implemented, you might do so for the enhanced edition? Add in some voice acting, make it a full-length quest, give it some stereotypical evil things sacrificing virgins, killing innocents, etc. At the end of it, you would be asked to slay a powerful Demon (who is otherwise blocked off, sealed inside a tomb or reliquary), a boss fight ensues, afterwards you plant the blade into the Demon, and the blade reaches it's final form. Something like that would be pretty interesting design wise.
