The C's are in a difficult spot with Baby.
On the one hand, it will put them in a difficult position if they lose him, because, like it or not, he played a major role on this team, and it is yet another spot they are going to need to fill this summer with minimal assets. Being able to use Bird Rights to resign him would make it a lot easier to field a contender next year, because they can use their assets to solidify other spots (such as starting center).
On the other hand, signing him to a longterm contract is a huge risk, given questions about his weight, how his real strength is his quickness given his size, and how that will not improve with age, and with the C's position to possibly have cap space in 2012, and whether they want to eat up a chunk of that with Davis.
And of course the other issue is whether Davis really has any interest in returning. He has made it clear on multiple occasions that he thinks he can handle a bigger role, and he may go elsewhere in the hopes of getting that role. He was basically forced to return a couple of years ago due to his restricted status, but this summer he is unrestricted, which could mean he just leaves no matter what the C's offer.
I just do not envy Danny this summer. He is going to have to make some very difficult decisions.