The problem is that you are using $n$ to mean too many different things without really defining it. You can't say that an algorithm runs in $O(n)$ time without specifying what $n$ is, unless it is clear from context. In this case it is not clear, and that is what is tripping you up.
When we say an integer multiplication algorithm runs in $O(n^2)$ time, the tacit assumption is that $n$ is the number of bits in the two input arguments. In practice, a multiplication algorithm that runs in $O(n^2)$ is usually actually a multiplication algorithm that runs in $O(pq)$, where $p$ is the number of bits in the first argument and $q$ is the number of bits in the second argument.
When analyzing an algorithm such as the one in the question, it would be typical to define two variables: the number of elements in the list (let's call it $\ell$) and the maximum size of any element of the list (let's call it $s$). The bit size of the representation of $\ell$ is $\Theta(\log \ell)$. Given this information—and the assumption above that the multiplication algorithm runs in time $O(pq)$ for input bit sizes $p$ and $q$—then the runtime analysis is easy: the function runs in time $O(\ell s \log \ell)$.
It is possible to do runtime analysis on this procedure using only a single $n$ variable, if we define $n$ to be the total number of bits in the representation of the entire input. That is, we let $n$ be the sum of the bit lengths of all the integers in the input list. Since $\ell$ and $s$ above are obviously no greater than $n$, we can substitute $n$ for $\ell$ and $s$ in our previous bound to get a weak bound of $O(n^2 \log n)$. A more detailed analysis can actually prove $O(n \log n)$, since each bit of the input is only used in one left-hand side of a multiplication.
However, if we also drop the $O(pq)$ multiplication assumption and assume only the guarantee stated in the question of $O((\max\{p, q\})^2)$, then trying to get a bound better than $O(n^3)$ requires a lot more fiddly reasoning about tradeoffs between element size vs. list size, and probably isn't worth it. [*]
The moral of the story: when analyzing an algorithm whose runtime is affected by multiple factors, state your definitions clearly, and use as many variables as necessary for a straightforward analysis unless there is a strong reason to lump things together.
[*] This is based on me thinking about the problem for all of 5 minutes. Maybe someone else can volunteer a proof of $O(n^2)$ under these assumptions, but I couldn't think of one.