Yeah, what #2 did definitely sucks, and makes them look like an ass for doing so. I agree that the next step for #1 is to show up #2 and let all know the idea was #1s first.

And yeah, the 'original fiction inner circle' is very small for me. But then, I had an original play stolen once, the entire thing, and then it was performed and all credit given to the person who stole it. Granted, it wasn't one of my best works, but that stays with you.