Ye Olde Inn

I think a bigger glitch in the story is why, if he has all the heroes captured and access to their weapons, why would he not remove the Spirit Blade from their arsenal? It's the only known weapon (at least by the heroes) that can harm him, and he doesn't have the common sense to revoke that?

It's #5 on the Evil Overlord List:
"The artifact which is the source of my power will not be kept on the Mountain of Despair, beyond the River of Fire, guarded by the Dragons of Eternity. It will be in my safe-deposit box. The same applies to the object which is my one weakness."

When I play and the heroes are capture, the Spirit Blade is taken along with their gold, it can be found in Quest 8, the Forbidden Caverns in the chest with the long and short swords.

Maybe the stupd minions with 0 mind points didn't recognize the Spirit Blade and stored everything together inside a common chest.

lestodante wrote:Maybe the stupd minions with 0 mind points didn't recognize the Spirit Blade and stored everything together inside a common chest.

Right, but you'd think the Witch Lord would be smart enough to know his own vulnerabilities... he'll order his minions to take all the heroes' gold (which would be worthless to undead, but perhaps he needs to pay the Doom Guard), but forget about that one weapon that is his primary weakness...

It's not too difficult to construct a narrative line that makes the chain of events in Quests 5 and 6 make sense:

The Heroes get to the gate of Bellthor at the end of Quest 5 and are summarily unprepared for the Gargoyle's poison-gas explosion trap, so they get knocked out.
The Witch Lord finds them a little while later and has his minions lock up the Heroes in the jail cells of his coliseum. To his dismay (but probably not his surprise), the Spirit Blade is among their weapons. Bummer! Welp, better make a note to hide that thing away again at some point in the near future. Anyway, the Heroes need to be killed off first before he can leave his lair; it's generally a bad idea to let your enemies capture your base of operations while you're out taking care of other things.
So the Barbarian and the Elf get dragged out to be fed to the Witch Lord's coliseum lions, or whatever horrible monsters he has on the box art for the Quest Pack. Unfortunately for him, Mentor intervenes at that moment, freeing the other two prisoners and letting them get the jump on some of his guards. At this point, the Witch Lord has two options: stay and fight, or run away to his Court. The problem with staying and fighting is that the Spirit Blade is either in the Dwarf's hands or in the chest containing all of the Barbarian and Elf's weapons, so if he stays he's likely to be cut down, particularly since all he has for minions at that point is a dozen skeletons and two Doomguards. So running it is.

There is another option if you like to use.
Say to your heroes (if they will ever ask) that they will discover LATER the real reason why the WL didn't take away the Spirit Blade.
Now if you read the fllowing lines, it will be a SPOILER....

in a new questbook I am working on (very slowly) I am planning the heroes to be helped by a mysterious figure. They will discover at the end that this figure is Sir Ragnar! In fact he is not a traitor, he was playing "double game" with the Witch Lord and helped Skullmar to escape to earn his trust. He is the one that when the Heroes were captured hide the Spirit Blade to not be taken by the Witch Lord's minions. He had to appear as a traitor because his doughter was kidnapped and he was forced to collaborate with SKullmar to save her life... but I don't want to say any more!

It was already a parody in the 90s - check out this classic Austin Powers sketch - death by unnecessarily slow moving machine:

https://www.youtube.com/watch?v=vGvI9JJiePQ