Hmmm to me the question becomes, does the sword "occupy" the square, can a creature shift or move through it, I'm assuming no since it doesn't say they can. So does this sword benefit from flanking rules, can you use the sword to give your rogue buddy and the sword combat advantage etc.
I think that the sword takes the square and is impassable unless you have a way to move through occupied squares, I also think that the sword does count as flanking for allies, but that perhaps it can't have combat advantage itself since it cannot "see" and doesn't get the benefit of CA due to that.