Actually, a 0/1 item can be repaired, it just doesn't make much sense to do so. Since Repair restores up to a certain percentage, any fraction gets rounded down to the nearest integer. You would have to have the skill maxed to get 100% repair, or have a merchant do it (Otho the dwarf can repair, IIRC).
Level 1 repairs up to 60% of an item's durability, so with a max of 1, it can repair up to 0.6, rounded down (since it can not increase, and has to be an integer) gives you zero. Likewise, a max durability of 2 can be repaired up to 1 with level 1 of Repair, 10 or 11 can be repaired up to 6, 12 or 13 can be repaired up to 7, etc.
You shouldn't need to unequip an item to repair it. Are you putting the sword on the ground because you ran into problems with the skill, because others who did found that more reliable (and you are playing it safe), or because Repair seemed not to work with this sword?
