As I read it, "Plague Weapon" allows me to reroll rolls of 1 to wound. "Blades of Putrefaction" adds 1 to all to wound rolls I make with the affected unit (it is a mandatory addition, unlike the "you can add 1" that is written in the "Veterans of the Long War" stratagem), and grants a bonus mortal wound for all to-wound rolls of 7 or higher made with plague weapons. The problem I see here is that, RAW, this psychic power prevents re-rolling 1's because any dice roll of 1 becomes counted as a 2, and thus ineligible for reroll.
Am I misreading something/missing a rule somewhere or is this the case and thus instead of a straight bonus blades of putrefaction is a trade-off.
You are indeed missing something. As per the FAQ rerolls occur before dice modifiers, so the initial 1's rolled would get rerolled and then you would apply the +1 modifier for Blades of Putrefaction.
That means the order of operation is:
Look over results
-If any results trigger re-roll then re-roll affected dice
--Apply dice modifier(s)