This is the very point I'm debating.No, that's exactly the point. They can only prepare as if they were single classed, and since a single classed wizard at 1st level cannot prepare anything other than first level spells
Its the order of operations that you're taking which is the issue. You're saying that 1st-level wizards cannot prepare anything other than 1st-level spells because the wizard is first level but no such restrictions exist. The wizard can prepare any spell regardless of level as long as they have the spell slot for it. Its just that single-classed wizards would usually only have 1st-level spells.
If a magic item granted this 1st-level wizard a second-level spell slot, the wizard would be able to prepare a second-level spell because he has the slot for it.