Look in the online readme for fast and up-to-date info. This includes details on updates, permissions, (in)compatibilities, requirements, contributors, and even chances for YOU to contribute to the development of this mod!
It is HIGHLY recommended that you read it before downloading any updated version of this mod.

Don't forget!: Comments and endorsements make me happeh!
Also don't forget!: "He who laughs last, laughs loudest," especially in a forum-like environment.

----------------------
So, that 'summer cleaning' didn't go too well. I ran into some problems with the planned scripts I had, but the good news is that it gave me some inspirations to work on the questline. So, that's what I've been thinking about for the past few months. The people who have played AdventureQuest will be relieved to know that it will not be random drops. Also, there will only be three pieces to find, as opposed to... what was it... six in AQ? However, there will be no hints as to where they are except in-game.
I plan to make them actual contests of your character's skills. I.E. you won't be able to progress if your strength, intelligence, illusion, what have you, isn't high enough. Just examples, and they may not be implemented. I do want to, as that will eliminate some needs for levelling the sword and I'll be able to use a script I've been wanting to use for a while.
The questline is still in thoughts, though, so don't expect it to come out 'til much later. If Skyrim comes out before then, I'll still work on it... a bit. If there's a suitable modeller out there or a sword in Skyrim that looks fitting, I may even import it.

Just for future reference: I'm thinking of open-sourcing my mod as soon as I've finished my direction with it. I know I hold no legal claims on it, but it's still my baby, and I don't want it leaving the nest until I feel it's ready to fly on it's own.
----------------------

This sword can be found in the Abandoned House in Anvil. Look in a corner.

The Blade of Awe has come to Oblivion! This sword is nourished by your character's skill, and it strengthens as you character does!
At level 1, the blade will only have the stats of a rusty iron longsword (which doesn't actually exist; I guessed using the dagger as a reference) and will have no magical abilities apart from being able to damage ghosts and the like. However, once you reach level 3 the blade will level up and gain the stats of a normal iron longsword, as well as the ability to deliver a powerful shock spell. At level 5, it gains the stats of a steel longsword. This continues all the way up to level 32 where it gains the stats of a daedric longsword, and the below abilities.
It's leveling follows a simple pattern laid down by Bethesda, but without being controlled by it so other mods won't necessarily interfer. Any time you would start to see certain items, let's say dwarven weapons and armor that appear at level 6, these will be followed by magical versions, but only two levels later at level 8. Following this built-in leveled item list, the Blade will gain the stats of a dwarven longsword when you reach level 8. However, since the Blade has a script which tells it when to level up, it isn't part of the leveled lists, so as long as any mod only changes those, then it definitly won't clash with this one.

On top of this ability to scale with your character, it also has some powerful magic hidden away. This includes:

A 15% chance to deal one hit of 33% damage to all creatures' CURRENT health who are within six feet of the target. Note that this ability alone should never kill any enemy, but it can cut those powerful groups and daedra down to size fast!
You will only have access to this ability when you reach level 17.

A 15% chance to deal a powerful blast of lightning! This blast will deal out 5 points of damage at level 3, 10 points at level 5, 15 at level 8, all the way up to 70 points of damage at level 32!
You will always have this scaled ability from level 3 onwards.

A 10% chance to absorb your enemy's health or magicka and transfer it directly to you! In some very rare (and I mean, 'getting hit by an asteroid underground' rare) cases, you can even absorb both at once!
You can only use this ability when you max out the blade at level 32.

Finally, a fat 1% chance to call upon the power of the Grim Reaper himself* to INSTANTLY kill any non-essential enemy! Mehrunes Dagon is immune to this effect, simply because that would be far too easy, and, of course, the obvious fact that he is immortal.
Only when you reach level 27 will you have access to this ability.

*Kick-ass awesome effects not included.

Amazingly, the Sword is able to differentiate between enemies and allies, at least, if you're pure of heart. If you aren't, then it's 'heart' is also affected, causing it to lash out unexpectedly at bystanders, or even those trying to help you!
Finally, if any of these abilities are reflected back to you: the Blade looks after it's wielder, and so will not allow them to harm you.

----------------------

This sword does not require you to start a new character. The moment you pick it up it starts off a quest script which checks your level every 5 seconds, and gives you the proper blade. However, the quest script is optimized so that if you are in combat or riding, it barely runs at all; running only two or less lines of code every five seconds.
However, when the last version is awarded at level 32, the script is deactivated.