I agree that his lvl 2 seems kind of weak. I always go for the lvl 1, or sometimes the lvl 3. I think his lvl 1 is great though. It may not be like everyone elses where its super easy to multi-kills, but Sweet Tooth's AP really builds up fast, so you can use it alot. And on top of that, a lot of times they fly into other opponents and you get double or triple kills. So i guess if you think his lvl three is pretty good, and his lvl 1 is too because of how often you can use it, it makes sense not to give him an amazing lvl 2.
And i'm glad its there, just in case you are facing off against someone who constantly dodges your lvl 1, you can get them easier with the rocket, or even if there is a group surrounding you and you can get them all at once.
I think you were playing against me on a FFA with 4 Sweet Tooth at the same time... I managed to get 2 level 3 in the same match and still lost lol. Sweet Tooth's level 1 is definitely amazing.