Unless you want to waste 30,000 karma points, it is recommended that you do not upgrade the Dragon Sword. Use one of the other weapons available, such as the Falcon's Talons, the Dragon's Claw and Tiger's Fang, Vigoorian Flail, Tonfa, Elipse Scythe, Kusari-gama, or the Lunar Staff. The Falcon's Talons are recommended. By level 3 or 4 you should be able to max upgrade the weapon of your choice, then use it throughout the game. In the beginning of Chapter 11, there will be an intermission sequence in which you get the Dragon's Eye, which will level max the Dragon Sword automatically.