The early 737-200 had only 1, 5, 15, 25, 30 and 40 flap notches on the selector, so I don't think it came from the 727. It was referred to as having the basic wing.
Most of the Basic aircraft we had were fitted with dash 9 engines, and were a bit short on performance. It was often the case that F1 was very limiting on field performance, while F5 was very limiting on climb performance. On a shorter field, it would be a similar problem with F5 and F15.
I understood that the whole point of having F2 and F10, was to give a better choice in these conditions, i.e. F2 would be less limiting on field than F1,and less limiting on climb than F5, so that the available take-off weight would be higher.
The aircraft so fitted were referred to as having an advanced wing, and I recall that there were some other modifications, relating to the way the leading edge devices extended with different flap settings