Just got mine tonight for the mere cost of 100k and I found myself wanting this just because it was always sold out. Don’t get me wrong. This is a nice looking sword and I don't see a lot of people walking around with it but at level 65 the Wise Wizard's Anelace and Aramis's Rapier (Also Rare), are much better swords for partying. Any way’z yes this is a nice (looking), sword and I think I’ll hang on to it a bit =)
You are right. the DRK demons in the 4 rooms on the outermost drop (NE wall for NE hole, NW drop for NW hole ect.) wield this sword.
I'm not sure about other demons in castle zvahl baileys, but i'm sure that if those tier demon (coffer key droppers) are in other spots, they carry this sword as well. too bad they dont drop them though.