Jayson Stark has written about what the Twins could do with Johann Santana given his pending free agency following the 2008 season. The team can sign him, let him play out his final year in Minnesota or trade him.
The easiest decision is to allow him to play out his contract. The harder decision then becomes building an offense that could make the play-offs. The Twins haven't shown the ability to do that this year, and they already have the task of replacing CF Torii Hunter's bat next year when he leaves via free agency.
Signing Santana will likely cost Barry Zito money ($126MM). The length of the contract then becomes the issue. No matter how good Santana has been, a $100MM+ contract for a pitcher is a risk. Remember how Kevin Brown's last few years played out after he got the big contract partly on the basis of having never been hurt? Could the Twins franchise overcome that risk?
Trading him is the most interesting, but what do you get for the best pitcher in baseball? A good ending point would be the haul the Twins got for C AJ Pierzynski - Joe Nathan, Francisco Liriano and Boof Bonser. The problem is knowing who those players are before they are successful.
Which raises the question would a team give-up an elite closer, a potentially-elite starting pitcher coming off TJ surgery, but still under the team's control for four more years, and a servicable starting pitcher under control for the same amount of time?