What would you do?

[hit4power]

I'm not a blue but curious as to thoughts on the following:

HS ball under Fed, no outs, R1 @ 2B, R2 @ 1B. B3 squares to bunt and sends a spinning squibber up the first base line, clearly curving for the foul line. PU comes out from behind the plate, throws his arms up and says "Foul" ---- at the same time as F3, standing in fair territory, boots the ball into foul territory. Since half the parents are screaming "Fair ball", the defensive plays on and when the dust settles, R1 has scored, R2 is at 3B and B3 stands at 2B.
Needless to say, the DC was livid, but after both umps talk, the play stands.

I know there is a huge component of HTBT in this, but I'm curious how often you apply 10.2.m (allowing PU to rectify any situation where an incorrect call put one side or the other in jeopardy) and how do you judge whether a muffed call actually put one side in jeopardy, i.e., in this sitch the defense never stopped playing the ball.