LA +4 is fucking ridiculous. It's not just "a bit steep". However, by what you've said, I assume that he isn't actually treating it as LA+4. That would indeed mean it is ECL 12, and not an eligible cohort.
What you seem to be saying that he's treating the base awakened dire wolf as ECL 7, which basically means it has a +1 LA (8 hit dice, counts as a level 9 character, so that's LA +1 not +4). That's a lot more reasonable.
Is that right? Edit: Wait... that doesn't add up either... It sounds like he's giving it a negative LA (-1).
And there are ways to give it weapons, if you want. The easiest is spiked armor, but that suffers the drawback that it is counted as a light weapon, and so he'll only get 1/2 his strength mod to damage with it and it won't benefit from Power Attack. You could instead give him a Mouthpick weapon (Lords of Madness, I think) which is basically a weapon that he holds in his mouth and attacks with. That will let him make iterative attacks, but he'll unfortunately lose his automatic trip attack, so it might not actually be worth it.
What I'd suggest is just forget about giving him a weapon. Enchant his bite with Greater Magic Fang, and give him the Combat Reflexes, Improved Trip, and Robilar's Gambit feats. Also make sure he is Hasted somehow (Boots of Speed, friendly party wizard, etc). This will give him extra attacks without having to mess with using weapons, and also let him get maximum benefit out of that free trip ability.
Use retraining (PHB2) or psychic reformation (Expanded Psionics) to rearrange his feats. The bad thing about Robilar's Gambit is that it requires +12 BAB, so he won't qualify for a while. You could instead use Karmic Strike, but the prereqs might be tough (it requires Combat Expertise, and therefore a 13 Int), and it only works if the enemy actually hits him, instead of if they just attack him.