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PS: The second you quoted out of order. If you reread, you will see that I was referring to FOO as the first "argument" (a typo for "element"..).
The grandparent poster was confused why the syntax (foo (1 2)) can be used to apply FOO to (1 2). As the parent points out, for typical Lisps this would actually give an error; instead, (foo '(1 2)) would be the appropriate syntax to apply FOO to the form (1 2). Indeed, when strictly evaluating (foo '(1 2)), first the arguments are evaluated. Since functions self-evaluate, FOO evaluates to itself, while '(1 2) evaluates to (1 2). Then, FOO is applied to (1 2). This is in complete agreement with what you said and what the specification says.
However, the Lisp interpreter at hand actually self-evaluates lists whose head is not a function. Thus (1 2) self-evaluates and (foo (1 2)) has the same effect as (foo '(1 2)).