I'm not not an expert on the game, so I can't help you too much on the weapon grade and such. But from what I've seen/heard dual swords don't seem very good. If you want to deal a lot of damage I'd suggest going with a pure power build and using either an axe or an odachi. Every point you put into power adds to your attack and the 3 weapon affinity's whereas Dex doesn't seem to rais your attack, just the DS and bow affinity. And you get crit every ten points or something, but it really doesn't seem all that useful compared to pure attack power and weapon affinity.
I've tried using the Onigiri which gives +7 crit and consistantly does less damage than a slightly stronger axe with no crit, so crit really doesn't seem like it'd make up for the lack of attack power you'd get from a heavy dex build. and of course if you wanted to keep using DS while putting points into power then your DS affinity would be pretty low which would then lower your damage. So again, my suggestion is to switch to and all power build and use an axe, odachi, or sword if you want to cause a lot of damage.
As for magatama, it seems like using one that raises the affinity of your chosen weapon helps quite a bit, defense seems kinda useless in this game so I'd suggest focusing on offensive magatama.
You already seem to know about smelting so just find a good axe or sword then get it up as high as you can and raise the skills as high as you can and use that until you're ready to upgrade to a new one. You should be happier with your damage. Also you probably already know this, but not all skills can be evolved to the next rank even if they reach level 10. The ones that can evolve should have a sort of golden double border which most skills lack. The only way to see this is to go see momo and look at the skills for the weapon that way. A skill being upgrade-able seems to be random. I looked at multiple boulder axes for example and only one of them had one skill which could be upgraded. Of course you can try to raise your lowest level skill when you upgrade your weapon when you smelt it, so you don't have to rely on momo, and if the skill rank is already fairly high then you don't really have to worry about upgrading it anyway.
Edit: Also try looking in this thread and asking any questions you have.
http://onigiri.cyberstep.com/_/forum/viewtopic.php?f=10&t=3100Edit: Disregard what i said about crit, apparently it's pretty good late game because of caps, so it's one the only ways to increase damage later on. I still think twin swords are bad though.