On the topic of blur, it's best to picture it as a way of cheating on drawing between-frames rather than as a part of the animation proper, a tool/effect rather than, say, an arm or leg.
More on topic, the blur should only stretch as far as where the sword was on the previous frame, and the less the blur is on-screen and recognizable for being a blur the better it'll look. Sometimes you can even erase parts of the blur, like with most art you're trying to emulate an effect found in real-life. Footage of movies with motion blur can be a handy thing to look at and learn from, as are many cartoons. Loony Toons used it a lot, for example.