Someone asked me about it the other day on AIM, and I honestly was at a loss for what to tell them. I mean, it obviously doesn't work like spiritual hammer or anything, but does it actually DO anything aside from change the attack type of a weapon?

I've had it any number of times with various paladins of mine, and I'll be goddamned if I can figure any changes at all in the weapons I use it on, aside from damage type. Obviously no healing or anything, lore and ID show the same exact stats otherwise too. Have I just been missing something all these years, and if so just what exactly?

The weapon becomes divine, wrath or searing light for the damage type. This is generally a major benefit compared to a physical weapon, and I used to use it all the time when I had it.
Useful more so now with staff and polearms, where as before it was not overly hard to get a sword that stuck with such, though maces tend a lot towards physical which makes it nice.
Eagle marked staff could now be divine power for example, on a champion paladin.

As to the additional affects:
It does the added affect that only a paladin can now wield the weapon.

And it makes it that the weapon will eventually crumble. And in fact, it seems like the weapon crumbles very fast if you give it to a different paladin.

Which again, thinking long term, means you have that weapon for a long time, since only paladins can wield it and you'll know when it crumbles to get it again. Especially if it's on a mob you kill instead of request from.

That is the sum of it from my experience.

I was hoping it had some hidden use that I had never discovered.