According to Enthorn on EJ:
Nibelung is a 1% proc chance. On a fully debuffed mob, it averages about 1200 damage, with a a 3-6% crit rate. Range seems to be about 950 - 1950 according to a few parses from wowmeter. Wowhead comments indicate it benefits from things like CoE, Scorch debuff, etc. -- it benefits from debuffs, not buffs, basically (much like mirror images).
I took it into SM Cathedral and grouped up a fair number of mobs and spammed Blizzard. I managed to proc 10 Val'Kyrs -- I don't know if they all procced at the same time, doubtful, since each tick can proc it, but there were 10 up at one time. I'm not sure if this is a max or not.
It procs off of damage spell casts, it seems, and it seems to proc whether it does damage or not. It can proc off Molten Armor, but it also seems to proc off of Chill (Ice Armor, Ice Barrier with Shattered Barrier). It even procced off the jet pack on Gunship battle. The tooltip says harmful spells, but I think it has a pretty wide range.
It doesn't seem to proc off the DoT portion of Living Bomb though. I'll have to do more testing though. A few wowhead comments say it averages about 16 casts during its duration. That would give about 19,200 damage at 1200 average. In my own parses, it was averaging about 17,300 damage per proc. I had one proc that had 16 casts and did 17,232 damage. I had another fight where I had two procs. There were a total of 33 casts and 34,748 damage. And lastly, I had a fight with, apparently, 6 procs. There were 100 casts (and 21 misses!), and 96,165 damage, working out to 16,027 average damage between them. On that fight, it was 4.7% of my total damage.
If I was going to add it into Rawr, I would simply give the weapon a 1% chance on damaging spell casts to do 17,000 damage.
It seems that increasing the proc chance to 2% is all that is needed to bring it in line with other weapons. Although, at 2%, [Frost Needle] + [Lightbane Focus] is still a better combination, but only by ~10 DPS -- and the damage value of 15,000 is pretty open too. There are many additional factors, such as it being Holy damage, and being able to crit, and being able to miss, and benefitting from debuffs on the target. Basically though, [Nibelung] needs to proc around 5 times during a 5 minute fight for the proc to make up for its loss of crit/haste/hit. This is entirely plausible, but at the same time, I've gone many fights in a row without seeing a single proc. I will definitely try it out though on Onyxia and Anub'arak. It doesn't seem to be worth it on single target fights, even though it's very fun.