Actually, Terry concerned the "reasonable suspicion" (which is a lower standard than "probable cause") needed to make an 'investigatory stop'. In this case, however, the prof was within his own home. The constitution affords special protection to people within their homes and the Supreme Court has supported this throughout our history. While it may have been legal to stop and question the prof on the public street based on a certain set of circumstances, an entirely different legal standard is used to determine what they can do to him in his own home.

Secondly, the facts are not usually judged "from the officer's point of view" but rather "objectively." Court judgments about whether or not an officer was conforming with the law when making a Terry stop are made every day. The supreme court has ruled that police must have one of two things to make warrantless entry into a residence --- consent or 'exigent circumstances.' I doubt this officer could have made a case for 'exigent circumstances,' hence the prosecutor dropping the charges. Since there are no charges, there will probably never be a formal legal decision on the matter.