Seems to be a slight lighting bug with the Shard Sword of Kahless.
It act like it has its own light source or something, or as if its constantly being lit up by an ambient light source.
http://alexraptor.com/images/swordkahlessBUG.jpg
I filed a ticket on this as well.
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which goes inside the body of my character.
I get the same thing too, and it doesn't have the be magical to look magical
When unholstered it looks like the characters wrist is a about to break off.
And when fighting the one hand is gripping directly on the blade itself instead of the grip.