Alright, I suppose you're beginner-intermediate, so I'll write it down in steps:
1. I think the text and sword shouldn't be too difficult to create by just extruding a box over and over again in the desired shape.
2. If a difference boolean operation doesn't work to get the text into the sword (which happens), look into displacement/bump maps as a workaround (see #4). OR you could just let the text stand out, instead of having it move into the sword. So instead of cutting it out, just lay it on top. Makes your life easier.
3. The word is slightly bent, so once you got all the letters, group it and use a bend- or lattice-deformer to give it that subtle curve.
4. The stretching of the texture is caused by the fact that you haven't UV-mapped your model (this also affects any bump/displacement maps). Check youtube for some tutorials on UV-mapping. Shouldn't be too complicated, since the model is pretty simple.
Hope that helps. Let me know if you got any questions.
Regards,
Ben van H.
http://www.fireinthesole.com/