I've checked it with a few quests.
If the sword is given with init data, Link will not start with it.
No sword when given at start
That's very odd; do you have a quest in particular that demonstrates this problem? I tried NeoFirst and a brand-new quest, and in both I started with the sword just fine...
Basically all my quests. :P
Yup. Ganon's Claim was one. Zelda Calling was another.
Ganon's Claim was made in 1.92 b183, Zelda calling 2.10 and in both of these it happens. Maybe it just occurs with the quests made in older versions.
You're absolutely right, the quest loader for older quests is broken, and looks like it has been since the item system was rewritten. It looks like not only the sword, but the shield, ring, and most other items in old quest init data were being "downgraded" one level. Fixed in the next build.