I'm planning on upgrading my fine steel sword to a katana next level, but meanwhile I've found an Anvil of Krong. Can I still upgrade my sword even if I enchant it first?
The answer is yes, but the item will lose all of its previous abilities, so in general it's best to save the anvil for the upgraded version.
I've also noticed that when upgrading an item with one ability (set tiles on fire) to an item with another ability (rockburst), I lost both abilities. So be wary about upgrading anvil-enchanted items!