1. Yes. "The strength of an enchanted item may be reduced by one to make it usable by someone other than the caster, such as a magically armored coat that anyone can wear." [YS,p.279]
2. To shrink down a weapon is basically to transform weapon from one size to another, so we must check "Transformation and Distruption" of Thaumaturgy type[YS,p.282]. By basic description it works via compelling "consequences" of target. If we use basic rules on breaking things [YS,p.320] - "item has 2 stress box modifid by item quality, most item do not suffer consequence". So basicaly if we can "take out" item, we can assume that it magicaly transformed from one form to another.

Let`s assume that we had Good(+3) Sword (4 stress boxes). Enchanted item power:

• 5 power to takeout item (or +8 if we count that item can resist transformation by rolling it quality rating, but this is too complicated)
• 1 power to make usable by anyone else
  This gives us Enchanted Item with +6 Effect.
  So now we need a wizard to contribute his slots for this item and being able to make +6 effect into 1-4 Enchanted Item slots YS,p.287 give use size of "No smaller than Ring(ear or finger)".
  How much slots it will cost for mundane wizard? Great(+4) Lore wizard can pull this by exactly 4 Enchanted Item slots. Slot breakdown:
  1 slot for +4 Effect
  3 slot for +6 Effect
  4 slot for +6 Effect usable by anyone else.

By default this item can be used one time in day to transform ring sized object in Good Sword. If you want to use it more than one time a day you have two routes:

1. Practitioner user can make additional use by taking one point of mental stress per use.[YS, p.280]
2. Use sword of lesser quality :) . This make sword less resistant to magical change, so effect can be changed to more uses per day.

Yes.

"The strength of an enchanted item may be reduced by one to make it usable by someone other than the caster, such as a magically armored coat that anyone can wear." [YS 279]

To shrink a weapon would transform it from one size to another, so we must check "Transformation and Distruption" under Thaumaturgy [YS 282]. By the base description, it works via compelling "consequences" of the target. If we reference the basic rules on breaking things [YS 320] - "assume that an item has 2 stress boxes, modified by the item quality… most items do not suffer consequences" — if we can "take out" the item, we can assume that it has magically transformed from one form to another.

Let's assume that we had a Good(+3) Sword (4 stress boxes). 

Enchanted item power:

• +5 power to takeout item (or +8 if we consider that the item can resist transformation by rolling its quality rating, but this is too complicated)
• +1 power to make usable by anyone else

This gives us Enchanted Item with +6 Effect.

So now we need a wizard to contribute his slots for this item who's able to place a +6 effect into 1-4 Enchanted Item slots [YS 287] giving us a size of "No smaller than Ring(ear or finger)".

How many slots will it cost an ordinary wizard? Great(+4) Lore wizard can pull this by exactly 4 Enchanted Item slots.

Slot breakdown:

• 1 slot for +4 Effect
• 3 slot for +6 Effect
• 4 slot for +6 Effect usable by anyone else.

By default, this item can be used once a day to transform a ring-sized object into a Good Sword. If you want to use it more than one time a day, you have two routes:

1. Practitioner can make additional use by taking one point of mental stress per use. [YS 280]
2. Use a sword of lesser quality. This will make the sword less resistant to magical change, so the effect can be changed to permit more uses per day.