I think releasing him would be a foolish thing for the Dragons to do. I can understand the angst his comments are causing for Dragons fans, but to me, that is what he is wanting so that, due to fans not being happy the Board give into his demands and release him.
That would just show every player that if you persist in making those type of demands, the Dragons hierarchy will cave in.
Now there are a few ways this could be resolved.
Option 1: Go hard line and tell him if he wants to retire, go ahead. Call his bluff. He probably won't get paid if he does, and also the NRL would be unlikely to register any new contract if he then "miraculously" un-retired and signed with another NRL club.
Option 2: Hard line, but less public. Keep him and send him down to NSW Cup. Tell him it is for disciplinary reasons due to his public comments, which is undermining squad harmony. Just because he is reputedly amongst the club's highest paid players does not mean he gets a free pass.
Option 3: Tell him they will let him go, provided the club that wants to sign him is will to offer a compensation package that meets its demands (e.g. a good couple of up and coming players or a star player).
I personally think those are amongst the likely best options for your club.