I don't think I appreciated the real value of the ability to forge custom weapons in my last playthrough of Radiant Dawn. It is an extremely useful system, and one of the many good innovations made in the two Radiance games.
From what I have read online, it seems the Japanese version of Radiant Dawn required you to spend "weapon points" that are acquired by selling old weapons in order to actually forge something. I am glad that is not the case in the US version, because that would have made the system far less useful. With the apparent difficulty of acquiring "weapon points", it would prevent the player from acquiring a large number of forged weapons, and it may have restricted forged weapons to only being used in the final phases of the game, when forged weapons would be already nearly obsolete because of the powerful SS-rank weapons and character-specific weapons. That whole subsystem would just restrict the player's ability to experiment with and have fun with the entire forging system.
The weapon point limitation was fairly unnecessary in large part because the entire system is already fairly well balanced. The whole thing works by taking one of the base weapons (Iron, Steel, and Silver versions of the default weapon types, plus a few thrown weapons and the basic Tomes other than Dark), and letting the player modify the weapon for a price. The cost increases exponentially with how much you modify it (so it is cheaper to get a slightly better weapon and expensive to get a really powerful weapon), with the base price set by the weapon price (so it is more expensive to raise the attack of a Silver Sword by 1 than it is to raise the attack of an Iron Sword by 1). Thus you have the flexibility of either making a cheap slightly-tweaked iron weapon or an incredibly expensive, but powerful buffed-up silver weapon, with both costs being (mostly) fair.
Another great thing about the system is the use of Coins. It is possible to acquire a number of items called "Coins" in the game that can be used to further upgrade an item after all other upgrades have been chosen and paid for, so you get essentially free improvements to the weapon. You can use one Coin per weapon to "choose" a random card (it gives you an illusion of choice, but in truth it is just drawn randomly, and is designed so that even resetting won't let you change the result) and add its benefits to the weapon. You can get simple things like the "Sword" card that adds to the weapon's attack power, or stronger things like the "Goddess" that slightly increases attack power, accuracy, and critical hit rate. Coins are extremely plentiful, so these free bonuses are an extremely economical way of adding to the power of your weapons. It is even possible to create weapons that are slightly better than a normal weapon at no added cost with a Coin. It is an elegant addition to the system that makes it slightly more complex and fun than the simple cost-benefit calculation of the system's main component.
For all of these reasons I really like the forging mechanic, but I still think the system could use a few more improvements. For one thing, this system makes it impossible to create weapons with any of the many special properties that are found on other weapons. For example, it is impossible to make a weapon with the "horseslayer" property that inflicts triple damage to enemy cavalry, or a "brave" weapon that can be used to attack twice. These kinds of weapons are very interesting and add a lot to the kind of tactical choices of the game, so it is a shame that they are excluded from the weapon forging system. That said, it would be somewhat excessive to enable the player to create such powerful weapons just by paying a fee. However, the "Coin" system provides a solution. It would be easy enough to let the player get special properties just by drawing the right card.
At this point, though, I wonder if the "Coin" system could be improved somewhat. As it stands, Coins are a nice treasure, but hardly something that feels particularly valuable or worthy of effort. After all, you may draw a good card with a Coin, but you might also end up drawing the "Vine" card and getting nothing at all for your spent Coin. In addition, you get so many Coins that it reaches a point where you simply don't need any more. Perhaps it would be better if the random element of Coin effects were dropped. Instead of finding Coins, it might be better to find "Sword Coins", "Goddess Coins", and "Brave Coins". Instead of giving up a generic Coin in the hope of getting a good benefit, the player would have to put the effort into finding particularly rare and valuable Coins and then choosing how to spend them wisely. This kind of change would make finding Coins more rewarding and would add to the kinds of choices available to the player.
On a much more minor note, I really like the ability to change the color of a forged weapon, but I would have preferred it if the chosen color overwrote the default color, rather than simply be layered on top of the existing color. The current effect is far from satisfying in many ways. It is impossible to get a pure black weapon, for example, and combining colorful Tomes with any color gets unusual results. I also would not mind the ability to choose the design of the sword in addition to the color. At the very least, the Blade/Greatlance/Poleaxe models should be available in addition to the default weapon models. After all, a lot of smaller weapons look fairly ridiculous in the hands of larger characters like Generals.
Finally, I owe this thought to my brother, but this kind of weapon customization would be a great thing to combine with the Fire Emblem 4 scheme, where weapons can't be easily traded between characters, don't vanish forever after breaking, and can be passed down from one generation to the next. It seems like it would be a lot more fun to pass down an incredibly powerful forged weapon rather than an Iron Sword. This kind of system would also be a good combination with the older and more restrictive Weapon Level scheme which made the distinctions between Iron, Steel, and Silver weapons part of the distinctions between characters and classes.