First let me say that I'm using 2.50 build RC2
Okay, let's start by creating the actual item. Create the sword and give it the graphic and check the equipment item box. Let's name it something cool like Mana Sword. Just for fun, you can name it what you want but I'll be calling it Mana Sword since we already have a magic sword by default. Set it's level to 3. Since there are two sword levels before it.
Now for creating the swords used by Link.
Mana SwordA
Set up the item as you want and set it's level to 4. Why 4? Because we want the player to use this sword and not the other one we just created, and confusion is caused when there is more then one equipment item of the same level. Well sometimes that is. This one will do damage. so let's set the damage to what we want it to inflict. Take note of the items number, that's it's id.
Mana SwordB
Same as before except set damage to 0. Basically Mana Sword A & B are identical except for damage.
When you've got that done let me know, and we'll move on to getting the script working.