Ive NEVER been able to find a sword yet, any tips as to where to find one? (tried loading the game three times and even tried exploring the second level to no avail.)
It is not easy to find, unless you know what you are looking for. In my current development build I am adding a couple of random human bones near weapons and shields, so that they are a bit easier to spot.
The sword is always in a room, quite clear of the walls, unless a spider pushed it around but you would hear that. A relatively easy way to spot it is to sweep your teleport beam around the room. the outline of the sword is quite visible when the "destination ball" passes over it.
If you want, you can easily cheat and spawn more of them though : there is a directory called lvls containing (surprise!) the level definition. Just open 1.lvl in notepad or any other text editor and change the line
This will spawn between 5 and 8 swords. The first number is the minimum amount of swords that should be spawned, the second the maximum. If you play with those numbers, be careful not to set them too high as the engine might have trouble finding room to spawn them at.