Certainly they could. That is very different than damaged goods though. It could simply be getting older and him settling into a pattern of regularly throwing 92 rather than 94 and it also does not guarantee the velocity will continue to drop.
The Cubs certainly know his medical info better than anyone else. While we will never know if they were blowing smoke about being prepared to sign him, we know they did say to the press that they might. We also know that Arrieta's agent is asking for more money than he is likely worth. These are things we know. We don't know if he is damaged in the same way that we DO know that Darvish has been better recently.
PC - see the Heyman article for some of the back and forth. Why would the Cubs check to see if Arreita would accept the deal Darvish got if they thought he was damaged goods. He wanted more than that. On my end I only want Arrieta if he accepts less than that too. Whether his price comes down and he accepts a deal is a very open question now.