Peter figures it out immediately, that Walter kicked Simon out of the program because he was worried that Simon would read Walter's mind and know Walter's secret. Alcoholism? No, right, right, taking Peter from the other side.
Anyway, Walter figures the mind-reading ability is probably dormant, but if Walter can reactivate it, then he could read Downey's mind and find out where the next attack's happening.
Then Walter goes nuts because a blue Volkswagen Beetle drives by, and Walter slugs Peter and says, "Punch buggy! Blue!" and Peter and Olivia look on, bemused. So they all go off to meet the guy, who lives in an isolated cabin. "I don't think this guy's big on company," says Olivia, and she and Peter go to the front door while Walter decides he's going to take a piss and just does so by the side of the house.
There's no response as Olivia and Peter knock on the door and call out Simon's name. Walter finishes peeing into the pond and zips up, and turns around to find a guy pointing a gun at him. Walter doesn't say anything, but the man says, "Yes, I know who you are. No, I wouldn't call it wonderful at all." So this must be Simon Phillips! And then Walter practically fries the poor guy's brain with the random thoughts whizzing through his brain. The first one is bacon. How about that! That's something Walter and I have in common! "Unicorns, Peter's birthday, dash of cinnamon, z2 equals z1 squared plus c, Reiden Lake... what does that mean? What are you trying to do to me?" Walter says his mind just kind of does this sometimes. Simon tells Walter that he has to leave, and then Olivia's behind Simon pointing her gun at him.
He swings around, and the swirling audio of Walter's thoughts is replaced by silence. "How come I can't hear you? Why can't I read you?" Walter tells Simon that she was a Cortexiphan subject too, and sometimes the children were immune to each other's abilities. Walter's thoughts start poking into Simon's head again, and he collapses in anguish, but not before saying, "'Berry Boom'? Don't you mean Frankenberry?"