Annotation scale in model space does not affect the size of your objects. It does change the size of your dimension text and arrowheads, IF you have different scales assigned to each one, not all assigned to each one as you have yours. The annotation property is only an assignment attached to your dimensions. ALWAYS DRAW FULL SIZE. Like Cyberangel says, you have to use viewports in paperspace to get annotative dimensions to work. Do not try to set up scaled objects in modelspace. That's why paperspace layouts came to be. I've never done it and never will. A lot of shops will frown upon scaling objects in modelspace to the point of handing out disciplinary actions.
Another thing, if you set ANNOALLVISIBLE to zero, the dimensions that do not have the same property as the modelspace current annotation scale will disappear in modelspace and only be visible in the viewport with that scale. Toggle the current modelspace annotation scale back and forth between 1:2 and 1:1 in the version of your drawing that I attached here to see what I mean. The dimension will change size because it has more than one scale. The way you had it before with two dimensions and two scales each caused no difference to show up. Needing only one object and one dimension was the whole point of inventing annotative dimensions in the first place.
More than one viewport per layout is just fine also. They don't have to both have the same scale applied, and the drawing can be presented in more than one viewport, each with a different scale.
I think you can go up to 24 viewports on one layout.
Did you know you can apply annotative scaling to text, mtext, dimensions, leaders and blocks?
Here's your drawing back. One object, one dimension, two viewports, two different scales on layout1. This is the only way it works. You can add more scales to these dimensions too, if needed.
Test.dwg