Yes sterlo was gutted at that. I think fatty going when he didn't have a clue about football was more of a kick in the guts tbh.
That World Cup Footy show was such a joke. It was nothing more than a glorified attempt from Eddie McGuire - who was CEO of Ch9 at the time - to jump on the soccer bandwagon and use the show in Germany as an excuse to give all his mates a free mid-year holiday, travelling first-class. I remember there was a lot of controversy in the media about this at the time, given the 'boned' incident and the stringent cost-cutting measures and subsequent staff redundancies at Ch9 that Eddie had implemented. Ch9 never, EVER gave a stuff about soccer and Eddie had plans of his own to cash in on all the publicity regarding Australia's first World Cup in 32yrs (Gerald Stone mentioned more about this incident in his book "Who Killed Ch9?").
I remember that first Footy Show after that World Cup episode. It was the NRL Footy Show's first show in Melbourne (for Melbourne Storm members only IIRC), and they were broadcasting in a small studio room next to where the AFL Footy Show was also broadcasting. Fatty and Matt Johns - the two members from the NRL show that went to Germany - both gatecrashed the AFL Footy Show and made appearances on it (Matt as Reg Reagan).
And yes, you're right about Sterlo's reaction. I remember him looking absolutely gutted at the start of the show, especially at times when Fatty and Matt were crapping on about what a great time they had over in Germany and all the shennanigans they got up to etc etc. Given that he had been on the show for more than a decade like Fatty and all the years of loyalty he'd shown to Ch9, Sterlo felt he should've definitely been over there instead of Matt Johns (who'd only been on the show as a permanent pannelist since after he retired in 2002). So, it was no surprised that Sterlo left only a few months later and at his official farewell show on the first episode of 2007, he looked very happy to leave after the show paid tribute to him in the opening segment.