Iaijutsu focus: "If you attack a flat-footed opponent immediately after drawing a melee weapon, you can deal extra damage based on the result of an Iaijutsu focus check." - Sorry DM Matt, it can be with any weapon.
The Sage has made no such ruling on crescent knives. Jontherev, if you would like to houserule that crescent knives function like shuriken, so be it. But as the rules stand, it is pretty clear by "Resolve each attack separately", that the weapon is intended to give you two attacks in place of each single attack you take.
Jontherev, I am truly confused by where you are getting "your numbers" from. With an 18 str and 3 warrior class levels, your total attack bonus for the crescent knives, all else being equal, is +7. In the surprise round, because you have expert tactician you get a free additional attack. I said to draw the second with your offhand for descriptive effect. But according to the rules, you could always just drop the first and draw a second in your main hand for your free melee attack from expert tactician.
Therefore, in the surprise round these attacks are each at +7. (btw - I did not even include mw crescent knives. At fourth level, I would think that it is more than likely that you could have several mw ones with would raise the attack bonus to +8).
In the first round of combat assuming you win initiative, you can perform a full attack and get the extra melee attack from expert tactician. That means full attack option to attack with two hands. meaning you take a -2 to your total attack bonus. Therefore, the +7 is reduced to +5 for all attacks. Therefore: 3 attacks each at +5 (+6 if you are using mw weapons). Assuming you are fighting AC 20 opponent, on average you will hit 30% of the time. Therefore, with dmg with main hand equal to 1d3+4+4d6 for normal attacks, (2d3+8+4d6 for crits), avg dmg for hitting with a 15 or above = .25x(1.5+4+14)+.05x.7x(1.5+4+14)+.05x.3(39). The first part is for regular hits, the second for unconfirmed crits, and the third for confirmed crits.
Therefore avg dmg for main hand per attack when fighting two handed = 4.875+.6825+.585. Each attack is really two attacks because of the crescent knife therefore avg dmg per attack is actually double this which = 12.285. This value is multiplied by two for the two main hand attacks (one reg + one e.t.) = 24.57
Now we add the off hand which is equal to .25x(1.5+2+14)+.05x.7x(1.5+2+14)+.05x.3(35). That equals 4.375+.6125+.525 = 5.5125. Multiplying this by 2 for the two attacks in place of the single, again because of the crescent knives, means total dmg for off hand = 11.025. Adding this to the 24.57 = 35.595
The dmg for the surprise round is better because you hit 40% of the time. Therefore dmg for the surprise round = .35x(1.5+2+14)+.05x.6x(1.5+2+14)+.05x.4(39)= 6.825+.585+.78=8.19. Multiplying this by two for the two attacks in place of every single attack because of the crescent knife = 16.38. Multiplying that by two for the extra attack you get from e.t. means total damage of 32.74 for the surprise round. Adding surprise rd. and 1st round total dmg means total dmg of 68.335.
These calculations are for non masterwork weapons. At fourth level the DMG says a character gets 3300 gp, more than enough to pay for 6 mw crescent knives @20gp +300 gp for mw.
As far as game balance, I completely agree with all of you who are alarmed by this smackdown - it is completely unbalanced. ITS A SMACKDOWN - they are not meant to be balanced.
Think about this character. S/he would have had to grow up in Amn or Waterdeep in FR and had access to planar knowledge to find out about the skill, iaijutsu focus, on Rokugan. Then, s/he would have had to come across a crescent knife - typically a tribal weapon, and trained in its use. All of these events are unlikely, but, hey, according to the rules, they are legal.
If people have trouble accepting this, make house rules - that is why you are the DM.