Decisions, decisions...

I think this adventure is beginning to take shape. Before going further, I need to decide on the magic item. My thoughts have drifted from it being a weapon necessary to defeat the dragon, to an artifact with a number of powerful effects and spells, maybe the ability to control others, etc. My concern is that introducing too powerful an item at such an early stage in any adventure is unbalancing.
One way to avoid that effect is to give the item powers that need to be activated in some way, either by a quest or something similar. You could probably give it level activators so you need to gain experience to have access to the abilities. The new system requires attuning to an item, which requires rest and time studying. It can be used to advantage in this way. It's also a nice way to put off deciding what the powers will be.
I like this dynamic to gradually discover and unlock the power of the item, but I think it will work better to know what it is. Ideally, having an item that anyone in the party can use will be best. That way, they can decide who will get it. It may even cause some discussion within the party as they understand more of what it can do. Dissension can be a dangerous game, but some groups will relish that.
My default choice would be a weapon, but that limits who can use it. The advantage is that it imparts the gravity you want for an item that powerful. I'm leaning toward a necklace at this point, or a diadem, something visible and exotic in appearance that won't interfere with any character's natural attack or defense. It also adds the danger that it may get lost or stolen, because of its small size. The mix of delicacy and power are an exciting mix. It also helps with the backstory - why the cult wanted it, how they used it, how its powers can be used against them. There is good stuff here.
I think it would be nice to have it set as an artifact with minor beneficial and detrimental powers that flip depending on who holds the item - say, one that attracts dragons and one that lets you fly, one that gives you advantage on saving throws, and one that makes you vulnerable to fire.
This adventure is geared toward fighting an adult red dragon. I think a necklace revered by the dragon cultists is the choice. It will be a necklace of spell storing, capable of holding 5 levels worth of spells. When found, it has none stored in it. The minor effects are vulnerability to fire, the ability to Fly once per day, resistance to charm or fear, attracts fire-based creatures, and it extinguishes non-magical flames within 30 feet when attuned. I'm not sure what to have for a major power, or if the spell-storing is sufficient. I'll think about that. I think having it lay a quest on the user is a good aspect in line with this adventure... something like visiting another shrine to acquire an item, then deliver it to the dragon. An interesting twist would be to have them recover a dragon-slaying weapon from another shrine and deliver it to the dragon to be destroyed. Once they arrive at the lair, the quest is lifted, and they can use the two items to fight the dragon. I like that.