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Just so I am clear, the best weapon a smith could forge in Wilderland would be a fell keen grievious one?

Anything else would be a magical quality, per Rivendell and Erebor. One magical quality might be in reach of a mortal smith, but it would be the work of a lifetime.

Additionally, cultural rewards can be upgraded?

Yes to all.

Regarding your last question, IIRC, a Cultural Reward is considered as having one Quality. So that 2 more Qualities can be added to it.