The shortstacked concept here is less important in a ring game. It is more important as a tourney strategy. Neither player played this wrong. Tho player 1 might have played it less right than player 2.
For some reason player 1 discounted or totally ignored the possibility of an overpair. His bad, and he paid dearly for it. While the 77 initially looked very nice, especially with no overs on the board, his call of the shove was uncalled for. The betting did not suggest an overpair until that shove by player 2. It could also have suggested the quads, but that part would not jive with the initial betting. It should have suggested that player 2 had hit something, perhaps the 555-22 boat, or the set of 2's. Equally likely would be a steal, so 50% of the time player 1 sees, and probably beats the steal, and the other 50% he's in decent shape.
I think Player 2 played this great, and sucked player 1 into his trap brilliantly.