It's supposed to be crappy, remember? Why on earth would the Daedric prince of deceit give you a free weapon with no strings attached? You're supposed to kill your friends to try and make it better, because that is Mephala's plan.
Yes, but the problem is that it's crap even when you upgrade it.
Yep. Mephala's plan is to spread misery and make your day miserable.
Most likely it was put in by the devs as a joke with a nice story behind it.
A bad joke, really.
If their games were bug/glitch/crush-free, then that could pass as a joke, but not in this case.
Again, they should fix and buff it.