The NPC itself seems to function very well. I tested it several times with no hiccups. There is a concern because repair is already obsolete because repairs are so cheap, but sharpening is something people often do while they are out doing things too, so I don't think it will kill the use of that skill. Prices as they are right now do seem ok, if just a little bit low. My personal suggestion is to raise the handling fee by something like 1 silver and leave the rest of it alone.
I like that the npc can sharpen a weapon all the way, this makes the service useful even to people who can sharpen their own weapon. Sure, they can keep it nice and sharp out in the field, but it doesn't hurt to visit the sharpener when you get back to town and get it touched up too. But that being said, maybe a special price should be implemented for weapons that never dull.
Since they will then remain at perfect sharpness forever, so it should be something a good bit more expensive. (Under the pretense that they are harder to sharpen, maybe.)