Not so Happy Days: How would you play it?

I played in the $25 buy-in NLH at Happy Days again tonight. I played one hand badly, and won with Ace-high queen kicker, and played one hand well (?), and lost. How would you play this one?

It's fairly early in the tournament, and I've grown my initial $5000 stack up to about $7000. Blinds are $200/$400, and I'm on the button. I get K♠ Q♠. Under the gun, a guy who looks like Shaft raises to $1200, the loose player next to him calls, and it's folded all the way to me. I call. The blinds fold. Three players.

The flop is 4♠ T♠ K&hearts.

Shaft, who has a slightly larger stack than I do, pushes all in. The guy next to him, with a small stack of about $2000, calls.

What do you do if you're me? You've got top pair with a good kicker, and two shots at a good flush draw. Do you put your tournament life on the line here? Better yet, what hands do you put the other guys on?

If you can fold this hand, you're a better player than me. Shaft shows T♦ T♣ for a set, the worst possible hand I could be facing. The donkey next to him shows K♦ 7♠. I'm only 30% to win the pot, against Shaft's 70% (donkey boy is 0.5%).

No spades come on the turn or river; Shaft takes our stacks; IGHN.

The match play blackjack tickets didn't help, either. I lose $10 on the first two, then win with the third, then lose with the fourth. That's -$10 there, too. And playing $2 a hand BJ while I'm waiting costs me another $13. That's -$48 for the night. Bah.