It's the most powerful sword in the game that you can find, perhaps, but far from the most powerful that you can have, thanks to crafting.
To answer the OP's question as I believe he intended it, yes, Arcane Blacksmith is entirely useless if you're planning on crafting your own uber gear. Just improve your crafted gear before you enchant it.
in terms of raw base dmg excluding enchants it is.
all the crafted weapons are in the same cabinet and if you can improve say a Draenic sword by 200 dmg (just as an example) via blacksmithing you can improve Chillrend by exactly the same amount thus it still sits higher because it started higher.
that said the weapons have groups here everything has the same dmg for 2 points or so then another group, then another as it goes down.
the most powerful weapons in the game in terms of the raw dmg numbers are maces specifically the Draenic one and the Mace of Molag Bal.
just for you here's some pics
http://oi42.tinypic.com/2qle3uv.jpg Chillrend 37 dmg as seen with this char (ignore the bows listed that's due to my skills)
http://oi42.tinypic.com/2eey2bc.jpg Draenic sword 35 dmg as with this char