Would add this to “bug or feature” section.
Apparently the chest in Henrys house is open even during the dream sequence, but it appears that sword itself did not had “quest item” mark on itself.
I would not be surprised if Warhorse allowed somehow to complete quest Vengeance 
you can Keep the sword at the beginning too. After the point you have “escaped” the castle make a beeline to the Talmberg in and rent a perma room. You will hafta to have made some coin selling stuff (need 250) like ALL the herbs you picked in skalitz and anywhere else and any gear you swipe that’s not listed as stolen. then put your good stuff in the chest in the room and the sword, You will then always have it and not as a quest item ( even if the cutscene with runt plays). Note :on pc you could use cheat mod and give yourself just enough coin to do this.
I tried putting sword into Skalitz chest. It didn’t go.
The sword is a quest item in my games. Guess they fixed this.
Even during dream sequence?
I did not see anything but darkness in dream, did you get to home somehow?
