MP is decent, a little loose. I had a feeling I folded the best hand but I didn't want to invest another $190 to find out. I don't know if his turn bet meant that he wanted a cheap showdown, or if he just wanted to keep me in the pot. What do you think?

Any potsize turn bet will pot commit me and I have no redraws if I'm behind. If I call the turn I have to call the river if it's a brick, right? And if I raise turn I'll only get called by hands that beat me.
Was it a mistake to lead out on flop? Should I just have called his flop raise? Stop and go? Reraised bigger? So many questions...

Party Poker No-Limit Hold'em, $2 BB (10 handed)

saw flop|saw showdown

BB ($24.01)
UTG ($480.15)
UTG+1 ($386.29)
UTG+2 ($105.6)
MP1 ($187.7)
MP2 ($186.3)
MP3 ($707.9)
CO ($127.75)
Button ($183.25)
Hero ($247.45)

Preflop: Hero is SB with , .
2 folds, UTG+2 calls $2, 2 folds, MP3 calls $2, 2 folds, Hero completes, BB checks.

Flop: ($8) , , (4 players)
Hero bets $7, BB folds, UTG+2 folds, MP3 raises to $25, Hero raises to $55, MP3 calls $30.

Turn: ($118) (2 players)
Hero checks, MP3 bets $55, Hero folds.

Final Pot: $173

I don't like your flop re-raise, but other than that I like it.

Hmmm, if he has a flush, he's very likely ahead (67 or 9T vs Ax, KQ, possibly QT, KT). Otherwise, a set or draw+pair, just possibly two pair?

Given you're out of position and he might call a reraise with any of the non-flush hands (since he's drawing live with position), I prefer the stop and go (on a non-pairing non-diamond turn) as a way of finding out if you're ahead. If he calls/raises this, then obviously check/fold.

Call my crazy but I'd be all in. The chances to flop a flush are extremely low, the chances that TWO people flop a flush is that much lower. he might have a pair and a draw or limped with a medium pair and has an overpair with a diamond. Your re-raise on the flop indicates a lot of strength, his half pot bet on the turn is extremely weak. He has a high diamond, your small raise gave him odds to see the turn and now he wants a river. All in.

I don't like the reraise on the flop either. You bet, he raises, so he probably has a high flush draw, most likely the A. I would assume he doesn't have the flush yet, low chance or that, although a lot of people play any AXs in MP/LP. He might be raising to get a free card on the turn, who knows?
Anyway, your reraise doesn't scare him if he has the A. He thinks you're on a smaller draw or trying to bluff. Just call and see what develops. Check-call to keep the pot smaller and try to get to a cheaper river, since you don't have the nuts. He might get a free card, but I don't want to loose my stack without an A/K here.

Here is the problem: You have two situations.
In situation #1 MP3 has a set, was raising to push out draws, but Kalle's nearly-min-raise scared him so he just called instead of pushing to try and catch the boat. Then when he catches the boat he bets just about half the pot for value figuring that if Kalle did flop a flush she might call him down.

In all other situations (save the person flopped a higher flush, or MP3 limped with 3-5 or 3-2, both of which I think you are safe to ignore 99.5% of the time) Kalle is far ahead And needs to push here to make a higher flush draw pay (she has about $150 left with a about $170 pot, so her opponent would be getting (3-1)

I think a set can be ruled out to a degree because this person is limping in LP to a pot with only one other limper, so the person doesn't have much of a chance of a babyset receiving very much action unless someone behind him wakes up with a hand. This guy is playing at a $200 NL table with a $700 stack--did he get their by incredible suckouts or by busting terrible players with a hot run of cards? How had you seen this player playing up to this point? These kinds of things will help you figure out which situation you are in.