It's a judgment call. I wouldn't say there's a wrong answer; it's probably more important that you take a firm stance one way or another and stick to it. Personally, I would grudgingly go with not allowing the player to be protected under the premise that it's the responsibility of each individual owner to monitor his players and protect them accordingly. I don't know when the player was injured, but the owner has theoretically known that the player would be Rule 5-eligible at this time for multiple in-game years and thus had ample opportunity to protect him.
As for your second question, this is precisely the kind of conundrum that is why
I'm stepping aside as an owner to focus on my commissioner duties. While you remain an owner, though, you have a responsibility to do right by your team, and since this isn't a case where any cheating took place I say go ahead and draft the player if he falls to you.