Swords are not always the best weapon - guns have better distance, bombs do more damage, and I can never tell whether or not to pronounce the 'w.' But swords were always preferable, since they offered a nobler kind of combat: up close and personal, with the winner determined by skill and strength alone. Also, game developers got a lot less angry letters from parents when they didn't include guns, so that helped too. Here's our tribute to the greatest blades ever virtually-wielded...
Lilarcor is a special sword - not only does it talk (frequently, and mostly about fighting and its desire to kill as many things as possible and as soon as possible) - but it also has the soul of a man trapped within it. In this regard, Lilarcor is really more of a character than a weapon, although it serves both roles nicely. If only it could be used as a vehicle and house, it would be pretty much the only item you'd ever need.
Maybe it technically isn't a sword (that may have been a little too violent for a Disney game), but the Keyblade in Kingdom Hearts was unique and powerful enough to come pretty close to that definition. It's a giant key (one of those ones you can't make a copy of), wielded like a sword (except without a sharp edge), and it's effective at combining your childhood memories of Disney films with your adolescent memories of gender-confused Final Fantasy characters. Also, the Keyblade could lock or unlock any lock you came across - a magical world for some, a horrifying dystopia for locksmiths.