Do you need the sword? No, it's not an important or critical item in the game. It's a nice weapon if you have a paladin (only that class can use it), though not as good as the one in HOF mode.
If you don't have a paladin in your party, my advice is to skip this and move on in the game.
Nightowl2
P.S. Of course, others will be by shortly with suggestions on how to take down the nasties
