The sword is actually good
But heres a few tips for detail if you want to use it:
-You may want the outline to either blend in with the colors or not be there at all. It works really well
-Make sure your colors all equally focus on where the light source is coming from. You don't want to make them seperate or else it will look a little off.
-As before (But i think you already know), use less colors. Using more will make it too detailed (Looking JPG'd/pillow'd/gradient'd). Most of the time, you really shouldn't add most colors on the outer part but on the inner part of your sprites
http://img88.imageshack.us/img88/4930/sworddylan.png (Unsupported image host)
Heres an example i made from your sword, for you
Also, one small tip: Do not add in too much dark colors. Always keep your colors at medium or light