Great points all Jem. I wasn't really thinking of any measurable penalty per se, as really I think the scar is about feeling empty or worthless.
One of the ideas behind it is that when a guilty person is suffering for their crime they are aware of why they are suffering - this removes some of the exestenstial pain of wondering why something bad is happening to oneself (the question "what did I do to deserve this?" asked by any who feel they are innocent.)
In a sense, the sword marks someone across lives in which they are in fact innocent. Now, mind you, I am not trying to justify whether anyone should be so punished but the idea is one I wanted to explore/capture.
As extreme as it is, does that sense of innocence or confusion of why one feels exestential pain/agnst a necessary component to achieving justice, of making the sentence fit the crime?
Let's say a celestial attacks and mentally disables a child. And the other celestials judge this crime as one of the worst their kind could commit, and they believe that the only way justice can be acheived is by making the accused into a mortal child born with similar dissabilities.
Now that's just off the top of my head but note whether the celestials are being just or not isn't necessarily something I want to argue - the very question of what is justice would be the whole point of bringing the sword into a campaign in the first place I'd think...
It depends on what spiritual components you feel are continuous between lives. Some might regard rebirth as making you almost a new person, and argue that death followed by a period of punishment in the afterlife is sufficient to expiate sin, to be followed by a drink from Lethe and rebirth anew. Some religions might even allow someone to be "born again" within a single lifetime. Others likely regard the karmic burden, meritorious and demeritorious, as something that can be carried across lives, and the Sword of Scars would express that. I would only allow it to function if you rule that the personality tendencies that led to the original crime would still in some measure be present in one's next life. In that case, I would also make it possible for someone so marked to learn of his crime and make amends or otherwise repent, and thus purge the Scar.
I think the mechanical version would not be too difficult, actually: the soul would be reborn subject to a Mark of Justice or a curse, possibly a more serious version than the usual. For those who make a monumental sacrifice or other greatly meritorious action when they are for some reason still due for reincarnation, I would also offer some means of providing a multiple-life blessing -- though I can see a reason for not doing so, since such a reward might itself be a temptation to pride.
For the most part I would reserve the sword's power to someone who would pass through a god's domain during their stay between lives; a lawful deity might have sworn an oath to abide by the Sword's judgment for some number of lives, or the Sword would require their approval to function in the first place, with an XP cost equivalent to a miracle. It's a pretty serious thing to do to someone, after all. It's also something I'd reserve to lawful deities and their paladins or devoted monks (or paladins of tyranny, as the evil deities might go, but what such a deity would see fit to punish so mercilessly is an odd thing to think of). The Sword is definitely evocative of the power of Law.