Thinking about the CMU/OSU game a little more, I'm wondering if the incorrect ruling wasn't actually more in the spirit of rule then the rule's actual language.
The intent of the rule seems to be that the team in possession of the ball shouldn't benefit from getting an extra play if they commit a penalty that includes loss of down.
In this situation though the team in possession does not benefit--the benefit goes to the team that did not commit a penalty. The rule doesn't seem to consider the situation that the loss of down could create a change of possession.
I could actually see a good argument that the rule should be changed to give CMU the play with no time remaining.