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Can confirm. It's still (2.3) usable by halflings. The description still says "this short sword may only be used by halflings."Interesting. Can others confirm that. As of v1.3, it had not changed Arvoreen.
EE has fixed this feature
If Arvoreen has been changed in subsequent versions, I'll note that I'm not convinced that this is a fix, rather than a tweak. Unlike the other NPC personal items, the Sword of Arvoreen's description had explicitly stated that it is usable by halflings, not just the relevant NPC. Developer intent seems clear. As of v 1.3