Now, as for what should have happened, according to the tourney part of RRoP:
34. All hands will be turned faceup whenever a player is all-in and betting action is complete.
So the moment player 2 folds the dealer should have told all players to turn their cards face up before doing anything with the pot.
Floor retrieves cards, tables them, winner gets pot, OP gets caution for touching another players cards.