I don't think a lower seed should ever have HCA over a higher seed, so I disagree that a 7 beating a 2 should "capture" the 2 seed.
Seeds were earned in the regular season, and the benefit of being a 5 seed over a 7 seed should last.
However, I like the idea of re-seeding. If the 8 beats the 1, then the rest of the bracket goes as expected, suddenly the second round matchup is 4 with hca over 8, and 2 hca over 3. I think that they should re-seed the second round, so that 2 gets the 8 and 3 gets the 4. Keep rewarding the highest seeds.