Maybe it's called a cursed sword because the demon king called it cursed? That could actually mean the reverse in the eyes of the more peaceful races. A demon king would call a weapon cursed if it was too peaceful. In the eyes of the demons being peaceful would be a negative attribute, so they could call it a curse. At the end of the day, a sword is purely a weapon. A generic axe could be used both as a tool and a weapon. A sword is only meant to slay opponents. So, a sentient sword that would prefer not to kill would be cursed.