They have a team option that they would be quite stupid not to pick up. Unless they can negotiate some sort of multiple year deal at a reasonable price.
Somehow, I think the Cavs of all teams will not be declining the option, in order to renegotiate a longer contract...
As for whether I would bring back Powe, absolutely. I think the C's took the right stance on it last summer, and I think Powe overreacted to the percieved "slight", but now that Powe seems to be recovering (although he still has a ways to go), I would absolutely bring him back.