When I was in the Army, 1SG was only for those wearing the diamond...however, we had a Services Battery that went for about a year-1.5 years without a diamond. The Senior ranking SFC was assigned the duties of 1SG for that time period, and he was referred to 1SG as that is the position he was in.
In the Air Force, I have never called someone that was not wearing a diamond 1SG. What is different in the AF however, is that we do have official diamond wearing 1SG in the rank of E-7, E-8, and E-9. Our E-9 is called Chief Master Sergeant. I have asked a few of them that were diamond wearing, which they preferred to be called....1SG or Chief.....I have gotten mixed responses.
How I have handled this particular situation was fairly simple. If we had a 1SG in our unit that later became a MSG somewhere else in the BN when their 1SG time was up, I ALWAYS address them as "Master Sergeant", as a form of respect for them as a former 1SG. Now, in instances where I don't know the person, and I see MSG on their chest, many times I will just call them Sergeant. However, that being said, I feel as though the grade of E-8 should have the full rank stated when addressing the individual. It's a special rank to hold, and deserving of the extra quarter of a second to say "Master" or "First" before the "Sergeant" part of their title comes out. Just my $0.02 for what it's worth.
I always called the First Sergeant " First Sergeant" and the other E-8's "Top". It seemed to work and disrespected no one.
I once commanded a Division Headquarters Company where E-9's (including a Command Sgt. Maj.) and E-8's abounded throughout the Company. Now THAT was interesting. As a lowly O3 I felt like I had woken up in a land of Giants. These guys had more time in the latrine than I had in the Army. And, don't get me started on their bosses.
Have you ever been "braced" by a Lt. Col. who didn't like our version of "clean sheets"? I had reminded him, apparently in a voice he didn't appreciate (I was on my 2nd tour - he was on his 1st and a Chemical Officer to boot) that we WERE in Vietnam and it really was a combat zone. Another story for another time.