Apparently improving an item at the workbench or at the grindstone has a smithing skill requirement of 14, anything below that and you can't improve even an iron dagger. Not an issue in vanilla since all skills start from 15 but my mod sets all initial skils to 0. Does anyone know where this requirement is set? I've looked just about everywhere, game settings, globals, quests, recipes, there's nothing in there. Any ideas?

Have you looked at the Smithing stations themselves? Perhaps there is a Skill check value in order to activate it, much like the locks are set up.