Or how about an easily breakable "predestined" question?  "What will be the next question that I ask you?"  Whatever it's answer, as you will know the answer, it will be easy to change and therefore invalidate the answer given.  You could optionally compel the forgetfullness so that they forget the question it says though. 

Or, you could have it that the item doesn't get destroyed until the person asks a different question next, in which case, you could really mess with their heads by making the answer be something like "Your next question will be: What is the one way I can save my own life?" (or the life of someone they deeply care for).  Then watch them agonise over whether to destroy the item, or hold on to it to ask what is obviously going to be a very important question!

Well, if they are playing game versions of themselves, this should be a lot easier to identify what your players would count as a "reward" in game as it would be similar to what they'd like to receive in life.  If one or more of your players are in a band, have their characters receive praise and recognition in the local (or even national, or international) media.  If one of them is big into technology, have them be given a powerful new gadget, perhaps to provide market research.  Or have your players' characters meet your players' heroes (real or fictional).

Basically, look at them as "super charged" Christmas presents: if resources and "real-world" limitations didn't apply, what would you give your players as a gift?  And once you've given it to them, look for ways to incorporate it into the story: What if a rival band decides to take down your players using so black magic?  What if the shiney latest techo-toy has a sinister agenda in making sure everyone in the world has one?  What if the hero actually needs the player's help with something?

Essentially, it's the same idea as giving D&D characters knighthoods, land grants, or the hand of the prince(ss) in marriage, but applying to a modern day setting.

More of a last resort for a wizard (well, sorcerer technically, template-wise) lawyer (or "Attorney at Lore"  ); most of the time, it would get used far more as the pen than as the sword.  So yes: pretty much a neat, but minor thing.  Beyond the concealment of it's other purpose, it would be a relatively mundane sword.

This does, though, beg a larger question: How does one structure transforming items in general?  Say you've got a shapeshifter who wants to have clothes that shift with them?

Ah, the "Bruce Banner's Pants" question?