Winter Wail is a quest item, that's why you can't sell or drop it!
To do the quest, explore the Elder Forest and enter the Varannari lands, Northwest of Mercia. Meditate with the old chief, Laughing Deer. He will send you on a quest that will transform Winter Wail into one of the most powerful weapons in the game! (You need 25 Reputation with the Varannari, END 3 and PER 3 to start the quest).