Try looking at it just a tad differently, using Tolkien as a backdrop.
Bilbo's magic sword is really just an elven dagger (more of a sidearm, really), and doesn't have a huge amount of magic in it. On the other hand, the two swords found along with it (Orcrist and Glamdring) were more powerful - so powerful that when the goblins of the Misty Mountains saw them they knew them from legend and called them by name. In d20 terms it might be possible to say that the former was a simple +1 dagger that glowed in the presence of orcs, and that the latter were +3 orcbane swords.
Or, to bring it even further, Ringil (Fingolfin's sword) is famed for permanently laming Morgoth in the first age - wouldn't that indicate that it is a more powerful sword?
In other words, is this a problem more with scope and with background than with mechanics?