Live 5/10 $500 max weird spot

[chuckbomb]

This game is at Tulalip Casino north of Seattle. They call it no limit, but it’s really spread limit, since there’s a $500 max bet and a maximum of three raises on any street (stupid, I know).

Anyway, my image is reasonably TAG, raising PF in position a bit, but nothing too out of line. I’ve never played with villain, but he seems like a fairly standard live player, loves to “protect his hand,” and can make decent laydowns if he feels he’s beat.
I’m dealt 8 [img]/images/graemlins/spade.gif[/img] 7 [img]/images/graemlins/spade.gif[/img] on the button, three limpers to me, I make it $65, villain in SB calls, all else fold.

Effective stacks $2000.

Flop 8 [img]/images/graemlins/diamond.gif[/img] 9 [img]/images/graemlins/spade.gif[/img] Q [img]/images/graemlins/spade.gif[/img]

Villain c/c my $110 bet after some thought.

Turn K [img]/images/graemlins/spade.gif[/img]

Villain instantly bets $500.


How best to proceed and why?