She probably gave back the sword because it was her own fault that you became a Dragon Knight in the first place and she felt guilty about it. If she had kept you more close, nothing would have happened (but it would make for not a very exciting game).
And so she failed her task again... she was too weak to do finish the job herself while you were still not powerful enough to be able to kill her (most likely). :P
By the end of the game, she would have no chance at all (like everyone else, save the Elder Dragon & Damian, perhaps).
