This is a good catch, the 2 AP cost while missing the second attack is a bit of an oddity and most certainly a bug, since no benefits are gained and only detriments added.
The simplest solution, conceptually, is to place this situation under 'dual wield' and have both attack (wands still fire in melee) but at range the melee weapon attack always misses.
This however, does then bring into the conversation whether to allow attacks/abilities that require a specific weapon to be used in this combination. My opinion is yes, it should, but only the proper weapon contributes to damage/effect calculations. So the opportunity attack is essentially a 1 hand melee wpn attack using the melee weapon equipped.
However, while these changes may be the simplest conceptually, I have no idea how hard it would be to code, as skills would need to make a hand by hand check for the character, filter out the appropriate hand and check range while attacking for each hand separately. So from a game design perspective, it may make the most sense to simply limit the opportunity to wield wand and sword at the same time.
Regardless of your balance discussion, these are the things you should take into account. The argument you both are having is mostly about tweaking and number balance, which can be done AFTER the problem of the current situation is remedied. Currently Wand/Sword is worse than anything you could otherwise choose and is unduly penalized for the choice. Regardless of the solution, it's a problem that needs to be addressed.
