[Zag]

Hmmmm, no comment on the flop call, yet. You have two outs (45-to-2 longshot), you are seeing pot odds of just 4-to-1 and maximum implied odds of 95-to-1. However, you have to discount the implied odds because (A) Once you hit it you chicken out; (B) You may not get paid off even if you hit your set and then find yourself a pair; and (C) There is always a chance of hitting a set and losing.

As it is, you have to be 99+% certain that this opponent would not have played KK or QQ this way in order even to consider the flop call. Then, you have to act on that certainty and get some serious money in the middle. You have to win an additional $22 (risk-free) after you hit the turn if you are going to justify the call on the flop. As it turned out, you only managed to get an additional $17 in the middle, with your opponent making the final raise.

Turn raise is on the low side of OK. River raise is too low, it should be to $10 at the very least. When opponent reraised, you should have popped it again to $40, at least. Note once again that you have to win at least this much to justify the longshot call on the flop. If he reraises again, you might even consider laying it down, but probably not at these stakes. Since his reraise will probably be a minimum reraise (given his history), make a crying call.

You have to get out of the mindset that it is only $1, so I'll peel one off. You have to consider what you are hoping for and what you are going to do if you get it. With an underpair, you are hoping for a set (obviously) and you have to realize that, if you hit, you absolutely must be able to win at least 40 times what you are paying to peel one off. If you don't expect to be able to win this much, then you should not peel one off in the first place.

Finally, you have started the hand with almost 100 BBs -- a medium deep stack. Generally, if you have a losing set, you should plan to lose all of this. If you get up to 200 BBs, then you have to start to think about getting away from a losing set (or at least minimizing your losses with one), but since you are not this deep, you really shouldn't worry about it. If you are worrying (as you seem to be doing) then you aren't getting enough value out of your winning sets.

By the way, it seems obvious that your opponent is a limit player without a clue about NL. You must punish him for his presumption!