Configure it like this:
Sword Beams work @ 80%+ health
You have 10 heart containers (10 hearts max)
You will see you can shoot sword beams at 10, 9 and 8 hearts of health. However, if you get injured and have less then 8 hearts of health, when you collect hearts to boost your health, you still can't shoot at 80%+ until you first reach 100% again. Once you reach 100% health you can once again shoot swords at 10, 9 or 8 hearts.
It occurs in Pineconns "Link to the Heavens" quest which is 2.10.
Hmm... I couldn't verify this with Link to the Heavens. With the Magic Sword, I lost beams when I dropped from 9 hearts to 8 hearts (of a maximum of 10), and was able to reclaim beams after increasing from 8 hearts to 9 hearts (of a maximum of 10).
I'm not 100% sure on this, it might be just a misconception. It should work on 8 and 1/2 hearts (if you have 9).
Still happening?
No, it isn't still occurring. I believe the fact that a red ring combined with the lack of quarter heart visualizations was making it hard to realize why it worked sometimes and why it didn't. If you have half a heart damage or less it will work but with 3/4's and more it won't.
The measurements are from "Link to the Heavens".