Was folding this set of 2's correct?

Villian has been playing tag as far as I've paid attention. I've got into some pf battles w/ him, but never past pf. He'll at least backoff pf when he knows he's beat. Other than that I don't have much of a line on his play.

My thinking on the flop was to continue to let him bet my hand and cr on turn. Then the turn scared me and my thinking on the hand changed. He didn't seem to be scared of the flush card on turn, so it wasn't till this point that I considered he might have been raising a draw. Do you think I gave him too much credit for a bigger hand than me? Tear into me. This is my first HH post [img]/images/graemlins/tongue.gif[/img]
Party Poker No-Limit Hold'em, $ BB (9 handed) FTR converter on zerodivide.cx

MP2 ($92.70)
Hero ($98.70)
CO ($88.60)
Button ($83)
SB ($121.08)
BB ($213.30)
UTG ($60.55)
UTG+1 ($85.40)
MP1 ($160.80)

Preflop: Hero is MP3 with 2[img]/images/graemlins/spade.gif[/img], 2[img]/images/graemlins/club.gif[/img]. SB posts a blind of $0.50.
<font color="#666666">3 folds</font>, Hero calls $1, CO calls $1, <font color="#666666">1 fold</font>, SB (poster) completes, BB checks.

Flop: ($4) 4[img]/images/graemlins/heart.gif[/img], A[img]/images/graemlins/diamond.gif[/img], 2[img]/images/graemlins/heart.gif[/img] <font color="#0000FF">(5 players)</font>
SB checks, BB checks, <font color="#CC3333">Hero bets $2</font>, <font color="#CC3333">CO raises to $7</font>, SB folds, BB folds, Hero calls $5.

Turn: ($18) Q[img]/images/graemlins/heart.gif[/img] <font color="#0000FF">(3 players)</font>
Hero checks, <font color="#CC3333">CO bets $12</font>, Hero calls $12.

River: ($42) 3[img]/images/graemlins/spade.gif[/img] <font color="#0000FF">(3 players)</font>
Hero checks, <font color="#CC3333">CO bets $35</font>, Hero folds.

Final Pot: $77