My favorite magic item in D&D is probably the Sword of Kas. The illustration in the 3E Dungeon Master's Guide is easily one of the best magic item illustrations in the book as far as I'm concerned.
Aside from the illustration, I really like the story behind it. An insanely powerful lich being betrayed by his vampire lieutenant and losing his hand and eye to a magic sword? Yes please. Vecna is one of the more interesting deities in 3E, and anything relating to his rise to godhood is of interest to me.
The Sword of Kas has had multiple different forms over the various editions, and it varies between being a short sword, longsword, or greatsword, but it's always an evil, intelligent artifact with its own agenda. If I ever use an artifact in a high level game, the Sword of Kas is the first one I think of. Other artifacts are undoubtedly cool, but there's just something about that sword that really works for me. I could easily see it being the focus of a series of adventures to destroy it. It could also be a major player in a Vecna-oriented adventure (as I understand is the case with the Vecna Lives module).
|Seriously, how awesome is this illustration? Photo taken of my original D&D 3rd Edition DMG|