This is an incredibly well thought-out supplement that would be ideal to use in games where you don't want to bother with standard magic items. Ancestral Weapons allows the DM to give players a signature item that carries significance to their characters. There is potential here for players to bond so much with their weapon that DMs won't even need to worry about other magic item rewards. Loving the continuous upgrades as well!
While I have implemented a similar system in my groups before, I will still give it a shot with other groups I play with. I really want this to work for us, because it has the potential to really change our approach to D&D for the better.
The only thing I'd caution DMs about is to be mindful of how spirit points are awarded. Be mindful of your players' dispositions, and look for ways to award spirit points that doesn't result in a mad dash for points, and a loss of compelling story-telling.
[5 of 5 Stars!]