wowhead reports a drop rate of around 43%.
Also, multiple GM's have stated that this weapon does what it was intended to do, and is no bug.
If you're interested, here's the origin of the sword.
bizold wrote:It seems to me that this sword is a reference to an old Everquest item called Inte's Sword of Death.
The sword was a drop off a mob (Inte Akera) that was thought to be unkillable. During the old days of EQ, in order for a weapon to appear on a mob or NPC, they had to be holding the item which had the desired weapon graphic.
The guild Fires of Heavens killed the mob and received the sword which was equipped by the paladin Kreugen. Kreugen and Furor (the leader of the guild) dueled after Kreugen looted the weapon, and Furor was defeated in seconds due to the overpowered stats on the weapon. (The Paladin "epic" weapon which was the best paladin weapon in the game at the time can be found here for comparison.
Shortly after (2 days or so) the item was nerfed by EQ devs and also made "No Rent" (same as a summoned item, disappears after logging out).
The sword being "quenched" likely refers to the fact that the original EQ sword was nerfed. This theory is further supported by the fact that the original bearer of the weapon was named Kreugen and the NPC that drops the item is named Kreug.