The first possible selection for flaps on the 727 is 2°. Are you aware of people actually performing this manouver on the 727 or any other aircraft through more than just long handed down rumours?
According to the NTSB, the flaps were intentionally selected to and did extend to 2°. The appropriate LED's extended as well for whatever reason, perhaps the wrong CB being pulled as you stated. The when the flaps were retracted, the #7 slat remained extended due to a pre-existing misalignment of that slat due to a failed bolt.