The setting was that they had been sucked into a pocket dimension within the Shadowfell, which had been created by an ancient Shadar Kai sorcerer-king, as a side effect of his mad attempts to establish and maintain control over his domain, which had been beset by demons. Once the players hit Paragon level they would have been able to find out who he was, why he was under attack, and who was ultimately behind all of it, but the campaign fell apart. He was the last of a now forgotten dynasty, when the Shadar Kai were still a relatively young race and not yet as given to decadence and excess as they are now; his fall, in my game, was one of the events that quickened their transformation into what they are. The two symbols of his dynasty were a magic orb and a silver misericorde.
The magic orb, despite being very beautiful and expertly crafted, was not all that powerful (it was essentially just a +1 orb with a +1d6 crit bonus), but the misericorde was the special item. It was called Wichtrift, and was created by the sorcerer-king's ancestor, the founder of the dynasty. It was crafted so keen and with such care, that it could slice through spirit-stuff as if it were solid flesh. Paradoxically, it would pass through solid flesh as if it were insubstantial. The kings of this dynasty were cruel, and increasingly insane, and they would use the knife to split the escaping spirits from those whom they had slain, and then magically bind them back together into increasingly grotesque abominations, and enslave them to do their bidding. The dagger was therefore extremely powerful, but also stained by a hideously violent and atrocious past. I wanted possession of it to create a moral quandary for the players, and for it to even cause expressions of fear from the ghosts who inhabited the place since they had been created by it and knew its power. The cruellest irony of it all would have been that the king, who had entombed himself, still living, at the bottom of this structure, would have been vulnerable to the weapon. I also wanted to give the players the opportunity to use the dagger for good, so at one point they encounter a "friendly ghost" who only wants to be freed from his place, where he had been eternally bound, and they would be able to use the dagger to do that. If they'd have held on to the dagger or the orb, by around level 12 or 13 when I had planned them going into the Shadowfell for the first time, those items could have become very powerful bargaining chips with some of the major powers in Gloomwrought and abroad; even if they didn't know exactly what they were, they would have been able to tell that they had originated in the realm, and were very ancient.
I wanted the knife to be based in an unusual stat so that it wouldn't be obvious how it dealt damage, and would also be easily wielded by even a character who was not usually martial by nature. Given its creation from and capacity for evil acts, charisma seemed a good fit. Despite this, it still deals radiant damage, however this radiance does not originate from faith in the divine, but sadistic cruelty of character. Other than that, attack rolls are resolved as normal, as if it were any other knife. I marked it as level 4, but only because that's what level the party was when they would encounter it. Based on what it does, probably 5 or 6 would have been a better fit, but given that its intrinsic power does not increase over levels, it doesn't really much matter. The name originates in Old Germanic and Old English and I take it to mean "soul-divider," a reference to its ability to slice spirit asunder.