The bug was fixed in patch 1.8. Now, the Dynasty weapon doesn't generate in that location.
********Swords
Sword of Griffons
Assassin's Blade
Blade of Chaos
Silken Sword of Kirin
Soul Eater
Perfect Silken Sword
Flaming Dragon Tongue
Sword of Retribution
Sword of Wolves
Iron Feather
Pirate King's Sword
Alliance of Angels
Sword of Compulsion
Malatua's Cleaver
Arachne
Oblivion
Sword of Wislbons
Edge of Balance
********Staffs
Staff of Eight Aspects of Ashi
Staff of Purification
Staff of Sar-Aggreta
Staff of Sandro
Staff of Dragon Bone
Sorrowful Song
Totem of Batu
Will of Urgash
Staff of Tides
Nameless Staff
Staff of Thunder
Soul Stealer
P.S. Has anyone figured out how to use pets? I bought a dragon pet, but I can't use it in the game. It's just inactive, even though it's in the Dynasty menu, along with the raven and chick. What do I need to do to be able to use them in games?