Hey all!
There was a sword in our 1st/2nd Ed. campaign called Carethian (sp?) (don't think it was related to the elven deity) which was an intelligent +660 longsword. However, each time you used a '+' to deal damage the power of the sword was reduced by that amount, and you had to power it up again by slaying things*. Also if you used more than +60 worth in one strike, the sword had a chance of breaking (it would deal the damage, then break).
*I think the power up was 1 HD slain equal to the next highest '+' for every restored '+'. So the darn thing took ages to power up, but could even scare demon princes and deities.
Not sure off the top of my head if that was THE most powerful item, but it was probably among the most powerful.