David,
${1} is indeed just a list of object files that becomes a space-separated string of those file names when Ceedling expands it into a linker command line.
It's certainly possible there's a Ceedling bug, but this is all working fine for gcc. I'd guess there's work to be done on what the IAR linker expects at the command line. It might be that the list of object files is in the wrong place, the object files need to be decorated somehow (additional flags), or something of the sort. If so, it's just a matter of tweaking your IAR linker tool definition or possibly adding a bit of Ruby code in it to rearrange things to match what the linker expects.
First, can you crank up the logging with --verbosity=obnoxious (or -v 4) and provide an example of the linker command line for one of your tests?
Second, can you point to or copy IAR's documentation for its linker command line?
Michael