This, unfortunately, is how the Cleanup Script works (as I understand it). When your character transitions out of an area, it triggers, clearing the items you've dropped from the server.
In this instance, the Team MIGHT (and I stress might) make an exception, due to the fact that you had no reasonable opportunity to pick up the sword and relog. However, I think (from precedent) that it would be more likely that the folks over in Disputes/Reimbursements would rule that it was your responsibility to make sure you had adequate inventory space for the weapon.
And, as a disclaimer, though I've read everything I could get my hands on in terms of material on the subject, I could be wrong on any or all points above.
*Tips his hat.*
Edit: Oh, yeah, loot and bodies. Those trigger the cleanup script after a certain amount of time, as they're created by the dying monster (as I understand), who doesn't exactly transition out of the area (being dead and all).