Blog 1 will always show posts from all blogs. If you don't want your default blog to act that way, then use another blog as your default blog. You should be able to move you categories (which will move all posts in the categories) from blog 1 to a new blog. Here's how.

First edit /conf/_admin.php and change

$allow_moving_chapters = false;

to

$allow_moving_chapters = true;

Then go to the categories tab, choose a category and move it to the root of your new blog. Repeat until all of your categories are moved. Then you can change the setting in _admin.php back if you want to.