I have watched a video of a deer being butchered with both bone and a flint blade knives and they didn't give up much to a steel blade as far as effectiveness. I was very surprised and impressed.
I don't know why a bone sheath would be any more ugly than would be a bone knife handle though come to think of it.
I'm sure it could be crafted into quite pleasing lines amenable to the knife it carries.
I haven't watched that video. But, I have kilt and butchered a number of deer. I also have saved some leg bones. And, I can tell you, there ain't much tougher on this earth than a deer lower leg bone. Can make great tools of all kinds. Not very big for a sheath but would work for a small utility knife. And, beauty is in the hands of the maker and eye of the beholder. OTOH, leg bone from a large animule like a cow is, IMHO, way to thick for a sheath. Would require a lot of work to bring down to usable thickness. I used to raise cattle and have saved some bones. They just ain't fun to work with. :td: