I think it's fine because horizontal progression is good. If you truly want to keep using Muramasa for its higher theoretical DPS on trash monsters, then you can just make a NE while having a second Muramasa sitting around. Also, frankly, as it stands, having Volcano be revamped into the cool weapon it became only for it to only really serve as an equalizing tool while sequence breaking in super-high difficulty levels because you mulch it into NE feels bad.
At that stage of the game, getting such a powerfully consistent and safe weapon should have a drawback, and I for one am more than happy to take a damage loss for the sake of having a weapon with such consistent performance. I need to do another solo playthrough now that NE was nerfed (I had used it once I got my first Muramasa, but stopped using it mid-Wall attempts due to announcements that it would be adjusted) but it felt like the weapon was playing the game for me.
I think horizontal progression logic does not apply to Muramasa -> NE since one is an ingredient of the other. From my view, NE is intended to be the king of all pre-HM swords, and I don't think it should be weaker than its ingredients when used as a sword (i.e. attacking with the blade itself). After the nerfs, I was a bit disappointed by the DPS of NE when I upgraded it from Muramasa.
I suggested reverting the nerfs on damage and use time and nerfing the damage of the secondary projectiles (extended aura) to 67% of the base damage. I think it is a more direct and reasonable solution to NE's problem in 1.4.4 since NE's only problem was the secondary projectile.
NE's stats pre-nerfs were exactly the same as in 1.4.3 and it was underperforming to the point that it needed a buff. The primary projectile (aura around the blade) is a mere small extension of the blade and isn't so significant (judging by the fact that size buffs on many broadswords had little effect on their performance). The secondary projectile (additional swing of the aura) is what caused NE to be so OP since it greatly enhances the reach and
it always swings toward the cursor, allowing you to attack enemies below you. (I personally think that the main flaw of broadswords is that it is impossible to attack from the above. Rather than changing its stats, reworking the broadswords to swing in the exact direction of the cursor would make them much more viable.)
33% is a bigger DPS nerf on the secondary projectile than the current 20% nerf, but I think NE will still be strong enough. (if it turns out to be too much then 25% nerf would be fine, or 33% + reverting pierce count/range nerfs..) On the other side, it rewards you for being closer to the enemy, as a melee weapon should, making a distinction with whips which do sort of a similar job. In other words, there will be a drawback if you decide to use NE as a safe and consistent melee option, but it also has the option to be a powerful and unsafe option. Also, I personally find melee weapons with faster attack speeds much more satisfying to use.