The whole Palladium-killing-me thing thus makes little sense in IM2. If the core was poisonous, why not go back to carrying a car battery around?
The only way the subplot makes no sense is if you forget about Tony Stark's hubris. I think it's made pretty clear that he ignores the problem, and that, when forced to acknowledge it, he wants to solve it himself using technology. Yes, I guess he'd rather die than carry a car battery around.