@Gnarlybolt My concern for DW Arms would be the fact that your weapons don't synergize with Arms talents very well. Having a slow 2hander gives you maximum value from Sweeping strikes (limited by swings), Deep Wounds (damage done is based on a % of the critical), and Mortal Strike (based on weapon damage vs Bloodthirst which is based on attack power). You could try it, but I think you'd find it less than either of the main 2 leveling specs.
If you compare the proc to the Thorns, Fire Shield, and Retribution Aura ranks available around that level, it's 10 damage compared to 15, 11, and 16 (untalented) respectively - and those spells can be up whenever you need instead of relying on a proc. One old comment mentions that it doesn't stack with Thorns, so it probably doesn't stack with Fire Shield either (but that comment is WOTLK era so it might be different in Classic). So if this is true, then having either a druid or warlock in group negates the benefit of the proc.
The damage it causes is minimal and certainly will not outweigh the additional damage gained from other weapons that level for single-target, and probably 2-target fights. Its value though obviously comes during those pulls with many lesser mobs... In which case, you can't rely on this proc to come up randomly, and THEN the mobs hit you enough for you to gain aggro, then not have that aggro pulled from the dps using AOE or even from the healer topping you off. UNLESS the damage from this proc causes more than 1 threat per damage done (which I'm pretty sure is the case for Thunderfury and the reason why the Thunderfury proc is so good for threat).
I would say this dagger could serve a purpose in a tank's bags for a few levels for those AOE pulls, but certainly not something you have equipped for the entire dungeon. You would have to save a bag slot and remember to put it on, and it still wouldn't make a world of difference, but it's something to do. Personally, I would probably just keep my Sword of Omen or Coldrage Dagger or whatever other weapon on.
I love the outside the box thinking and the suggestion though!