Zed, sadly to say, sounds like you're stuck.
you have an unpatched version of IWD? well, one of the things addressed in the patch was the "rotting" of items, especially important items like that badge. what happened is, you missed the badge and left the room and probably rested or left for town? after so many hours, the badge just rotted away like every other item does. theoreticly, with the patch this would not have happened. but what's done is done. try loading a previous game ::shrug::
you may also get a cheat code to create the badge again.
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