Definitely the first game.
The third dungeon:
From the starting spot, move one frame up, 5 (I think, it's been ages since I've played the original) to the left, one down, and one to the right. There should be a bunch of Armos (the statues that come to life when you touch them) surrounding it. Alternately, if you know where the the nearest fairy spring is in that area, move down as far as you can, then to the right.
As for the sword you're talking about, you're talking about the Silver Sword, or whatever the second one is called. I'm pretty sure you can get it after completing the second dungeon, and if not, the third.








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