I also believe it gives -1 hour dragon strength when wielding it, that's not a combat prog as I stated earlier.
And you can fight with it, I've used it in fighting the guardian and other players in the area, worked just fine, at least there.
Of course, you better remove/drop when it comes time to flee, because otherwise you can't.

I have my doubts you got it out of there, or that if you did it wasn't via an exploit in broken mechanics like fear poison or something else to make the guardian move.
I also wonder if you could get it out by dying with it, and having it return to corpse. Rot death means it would crumble, but you could have it in theory for a little bit.

I always suspected it was the weapon of Drokalanatym's chosen one, and that the temple is Drok's shrine.
Lurker in the Depths, it's in the depths of the dragon sea.
Would all make sense for the lore of the area.
Wouldn't be broken, just technically impossible at the moment, since Drok doesn't really exist as an Imm.

I always wanted to make a char that was a drok priest, but that would be 300 hours of futility and frustration.