I've got a couple of questions and comments firstly on the character and then on the more general situation
a) what level are the party members? and how have they generated stats?
Because he needs a high int as a spellcaster and if he's standing up reasonably in hand to hand he's probably got a reasonable str, con and dex because his BAB and hit dice are low enough that he's going to be in trouble without bonuses to hit and lots of bonus hit points.
b) I think I've probably found the spell
Magnetism – Spell – D&D Tools
which is a Wu-jen spell, not a wizard spell so he's being dodgy using it even if you allow 3.5 spells note that
i) it needs a ranged touch attack
ii) it has to succeed on a disarm check and it'd be fair enough to give the defender a large bonus to avoid having their armour stripped
iii) it looks like it's a standard action to cast the spell and make the attempt or to make the attempt to disarm on later rounds so if he's doing it he's not casting any other spells
(so he can cast the spell and attack with it in 1 round but can't cast a second spell and use this spell again)
iv) the opposition can have multiple weapons
c) if he's got Arcane Armour Training that's at least 2 feats he's spent (Light Armour Proficiency and Arcane Armour Training) if he's wearing medium or heavy armour then that's another feat for medium and 2 for heavy.
If he's wielding a hammer he's had to spend a feat on that so he's spent his 1st level, 3rd level and 5th level feats at the very least to be able to do what he's doing with weapons and armour, I suspect he's had to spend more
d) the only Material I can find that reduces Arcane Failure type is Mithril, which
i) adds a fair amount to the cost of the item at lower levels
ii) still needs the medium armour proficiency for base medium armour (& heavy for base heavy armours) so that's a minimum of level 7 for medium and 9 for heavy
iii) the only light armour that could be made of mithril is a chain shirt which gives +4 to AC so is unlikely to be what he's using as it's hard to see how he'd be getting to AC 22 with that, even if it is he's spent 1000gp on it and 2 feats to be able to wear it. and he's only getting the AC bonus that Mage Armour grants
iv) if he's got chain mail or a breastplate he's spent 4000 gp & 3 feats to be able to use it
v) if he's got heavy armour of some sort he's spent 9000gp and 4 feats on it (so not possible until level 7), level 9 to be able to use the hammer as well
e) the spell to prevent flying is probably Earthbind from the Spell Compendium which does allow a fort save, it's a level 2 spell and single target.
If he casts it before casting a pit spell then they've got a round to get in his face before he gets the pit off or attack people
Either way he's taking a couple of rounds and the low level pit spells aren't really an instant win.
f) The fire dwarf race sounds broken, 15 points of resistance to fire is a huge defensive buff considering how many things do fire damage as their main weapon. Has it lost many of the standard dwarf abilities?
g) it really doesn't matter what weapon & armour a wizard has, if he goes into melee he's still got a d6 for HP and the lowest BAB in the game.
h) the player is being a complete tosser but you're being a pushover. If you told them it was a low magic campaign and he tried to smuggle a wizard in he's being a prat. Now if people are talking with you and say that they don't want to play a low magic campaign you might want to compromise but they don't get to sneak a wizard in.
i) Especially if you're starting characters off above first level ensure tht you check them out before you let them in.
j) As the GM you determine what sources are acceptable and can ban anything from the game, including anything in the core pathfinder rulebook. Again discussions with the players is a good idea in general
k) you've got several options for how to proceed
i) leave things as they are and experiment with how to deal with the wizard
ii) check the charactor for legality and ban anything that is illegal irrespective of the source
iii) say that you will only allow spells from the core Paizo published books by default but if people want spells from other sources they can show them to you and you will make a decision as to whether they're allowed or not
iv) ban the character saying that you wanted to run a low magic campaign and he doesn't fit
if you decide to let the character stay then you could use some of the following ideas off the top of my head (some of them could be seen as targeting the player so be careful)
- give the other characters some additional gear so that they aren't overshadowed
- have some ranged attackers focus on him after he reveals what he can do
- have groups of enemies because most of his spells seem to be focused on 1:1 spells, he puts 1 of them in a pit but if there are 4 or 5 left then there's still a fair challenge.
- have the odd enemy with touch attacks which ignore his armour
- if they're in a low magic area there may be animals that eat or are attracted to magic which he becomes a target for
- there would be few things funnier than seeing him pull an intelligent magic weapon which dominates him (especially if it has a special purpose of 'kill fire dwarves') a berzerking hammer could be particularly amusing...
- opposing forces will probably target him heavily because it's something they haven't seen much of and are frightened by.
- have them discover some items which attack arcane magic (remnants of the event that drained most of it)
- there might be some creatures which have higher resistance to arcane magic because they were related to the event or affected by it.