Last week's session summary - When is not a hand a hand?

I think it was Caro or someone of the like that said that an observant / vigilant player should see free cards every so often.  This could come in the form of hole cards, burn cards, etc.  However, in my readings, the behavior of seeking out free looks at cards is not only condoned, but also encouraged.  As a habit, I try not to go out of my way to see others' cards - encouraged or not.  I think it's a blurry line when you start to seek other people's cards on purpose.  I'm a believer that it's not my place to notify people that they're showing their cards - it's their job to protect the cards.  However, I'm also a believer of the idea that what is seen cannot be unseen.  Therefore, I'm not going to try to look away when another player is giving me a show, just the same as I'm not going to crane my neck to get a peek.

I sat down to play a session last week.  As has been typical these days (past 2 months), my session was mostly sideways to losing slightly.  I had just ran my flopped set into a donkey who snap called my open shove with an OES + bottom pair and turned his straight (details unimportant, but it was truly donkish of the other player).  I re-filled my stack back up to $200 when the following happens:

New player (I've played with him before and he can be difficult to play against; usually knows where he is, gives me respect and I give him respect) posts & checks his option to me on the button.  I don't remember the hand I had, but I limped as well (3-4 other limpers before) and we see a 2 diamond 7 high flop.  New player lifts up his cards lazily and flashes paint.  I believe his paint was a black King.  He weak leads the flop and I determine that any overcards / diamonds on the turn will allow me to take the pot away on the turn / river.  So long as there's no King, I'm likely good here as a bluff.  I call and the table folds.  Turn is a diamond (Q?).  He leads for $25.  Executing my plan, I raise.  He mulls it over and calls, which surprises me with TP at best here.  River is a blank and he checks to me now.  Sensing my opportunity, I charge largish for $65 and he pauses for a second before calling.  Utter shock on my face that he could make such a call in this spot with such a weak second (or even third at this point - don't really remember) pair.  I'm mystified and wondering what the heck I did wrong - that's one hell of a read on his part.  So much so that I want to peel away from the table with a player who just completely owned me with his mid pair on a scary board.  He waits for me to show, as I expect him to do - I show my bluff pair of 2's (I think that's what my hand amounted to at this point) and he flips Kd8d for the second nuts.

It's one thing to see other players' cards...  it's a whole other thing to see them and read them correctly!