Oh, I agree they blew it many times over. This team will probably succeed, if it does, in spite of Colangelo, not because of him (though it might also still fail simply because of injuries).
But now that it is where it is, not sure it really matters whether they play him, release him or wait for a trade. But only option 3 still salvages something, however minor, from the mess. That they might be doing it merely to save face doesn't change that.
(And yes, obviously they are terrified that he'll thrive on another team.)