Here's what I said about about resigning Theo a few weeks ago:
One thing that works in Theo's favor is that he is the top of the class of free agent goaltenders. Him and Cristobal Huet are the only real #1 caliber goaltenders on the market. After these two names like "Johan Hedberg" and "Jean-Sebastion Aubin", Jocelyn Thibault, Patrick Lalime, and those likes. There's some decent RFA's like Marc-Andre Fleury and Pascal LeClaire, but the Avs don't have a 1st rounder to give even if they wanted to try and sign one of those guys to an offer sheet. The Avs could also deal for a guy like Jaroslav Halat in Montreal, or Gerber in Ottawa. They could roll the dice with Hasek too. (BWWAHAHAHAHAHAHA)
Tapeleg would like to see him test the free agency waters, but in my opinion any other option is just as risky as Theo. I think the avs should sign him. 2 years $4 - $4.5M/year sounds about right for a goalie of Theo's credentials, based on the current market (though I could see his price as high as $5.5M/year)
I can't say I am terribly surprised. I would have liked the Avs and Theo to come to an agreement, but any worthwhile agent would be holding out for a bigger contract than I think Theo is really worth at this point (this is all speculation since, predictably, there's no news about how much the Avs actually offered Theo, or how much he wanted). The barren wasteland that is the goalie free agent market this season means Theo is probably going to command a $6-$7M/season 3-4 year deal in a week or so, which is more than the Avs want (or should) pay him, despite all his struggles the last 2-3 seasons.
I think Budaj is fine but I am not convinced anyone in the Avs system is ready to be Budaj's backup, and Theo gave the Avs a solid goaltender tandem. Now there are incredible questions in net.
The Theo era in Denver appears to be at a close, and I think this says it all: Theo won 2 playoff series as an Av, but he was 0-8 in the second round. We (Avs fans) can choose to remember him as an overpaid bust who found his game just in time to get paid, or we can remember him as the struggling athlete who was able to find a bit of redemption at the end.
Probably a little of both.