You pass the code itself when using the source parameter, not the name of the object!
alter session set plsql_ccflags='trace_level:1';
begin
dbms_preprocessor.print_post_processed_source(
source=> q'!declare
x number;
begin
x := 55;
$if $$trace_level = 1 $then
dbms_output.put_line( 'Trace level = 1 ');
$else
dbms_output.put_line( 'Trace level != 1 ');
$end
end;!'
);
end;
/
declare
x number;
begin
x := 55;
dbms_output.put_line( 'Trace level = 1 ');
end;