The most common way to get to Lake Rathetear is via South Karana. South of the gnoll camp at zone in, there is an island with some Aviaks in a tower. Part of this tower extends over the water. The hilt is a ground spawn (that means it looks like a little brown bag) underwater directly beneath the extended part of the tower. I'm no expert on this, but it appears that the piece is spawned by somebody swimming in the area looking for it. Both I and another warrior have had this experience, so if you dive down and look for it, and it's not there, come back up to the surface for a little bit and then try again. If you're really lucky, you might even see the bag appear up in the sky and fall to it's position under the water like I did!