In German Text with a subordinate clause, it is often used to give extra information, that can be left out, but the sentence still makes sense without it.
Example: Mein Auto, das ich sehr gut finde, fährt sehr schnell.
You could leave out "das ich sehr gut finde" and still read "Mein Auto fährt sehr schnell." and understand the sentence.
If you put "was er will" into a nested subordinate clause, the impression could be given that it is extra information, which it is not.
If you read the sentence like "Er ist ein Mann der weiß" the information of the context what he knows is missing.
This is not "the" reason but it may be one reason why #2 it is not used in this case.
Also verbs at the end of present tense are very rare in German as i can think of it, they are usually used in past tense. It creates a "hanging" feeling of not knowing the action before the contextual information to it.
Example: "Er geht zum Einkaufen", "Er ist zum Einkaufen gegangen."
Lastly there may be a (unwritten) rule to put the verb right behind the relation, because with "der" you are relating to the "Mann" and should not rip apart the Man from his action because otherwise the direct relational context is missing.
I can not say this for sure, as i can not point to a definite rule, but as a native speaker #2 really sounds "wrong" and not just uncommon.