Canon check for those unfamiliar:
Inuyasha turns "full demon" (red eyes) whenever he's dear death. The sword normally helps keep that transformation in check. I guess most of its power taken is the twist that lets it happen here. First time this happened in the series he slaughtered an entire town of people and scared the hell out of the group. Don't say I can blame them.
It's come up, eh, 3 other times maybe? His fighting against turning into demon form has been an ongoing thing, humbled by his time as "full human" (nights of a new moon). This is by far the most normal he's been while transformed. Previously he wasn't even able to talk.
Also, red sword = barrier breaker is just another sword mode they wasted an entire season learning and amounted to essentially nothing in the long run.