Nice item. Items like this are more common in the mytho-historical record than the uber-swords. I read once a myth about a viking Grotte (I think) who had mill stone that would turn anything into anything. Eventually the stone was captured and the naive new owner asked for salt. Of course things went wrong and now the oceans are salty. Then there was the Strega Nona's pasta pot. You stone here will be a nice item for players because it doesn't have a down side or relgious trappings. I can see the players messing with it.
Excitable Player: "If we hook this up to a wind mill and maybe a sand chute, we could make a kiling selling grain."
Roleplaying Player: "By the Gods dear sir, you would take Hannetta's blessings to all men and use it for such base self-advancement."
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Meta-player Number 1: "Yeah, if we do that the GM will have us drown in grain or something."
I want this to be the focus of a save-the-town quest. Everyone is starving, quickly! Find and lug the heavy stone object through the dungeon, across the rickety canyon bridge (WHUMP!), over the lake in the leaky boat (*gurgle*), up the hill, up the hill again, (Damn you Sisyphus!) et cetera. It makes me snigger with evil DM delight.
I like it. Simple, useful, sentimental, and not at all overpowering. How big an object will fit into it? If someone's hand is caught in it, will the millstone magically keep grinding and pull them in or does it require manual turning of a crank? If gold is ground up, will the resulting bread be a sparkling glitter-gold bread?
As strange as it sounds, I could see this item as a way to "destroy" an indestructible evil artifact. The artifact wouldn't be destroyed; it would just change forms to flour and thereafter baked into safe, edible, and tasty bread. "Give us the Conqueror's evil Medallion of Malice, or we will kill you and take it anyway!" "I ground it into flour to make my bread! What now, punk?"
It's funny in an "I can imagine one of my players coming up with this" way. Quirky and original, too. Not entirely practical, but for a lighthearted campaign quite useful. Have a 4/5
On a side note, imagine super magical birds being the supreme rulers, and their envoys carrying their bird houses hence and forth. Perhaps the UberBird has its BirdPalace linked to a hundred portable StaffBirdHouses!