I agree that Peters had a down year but he had a stellar year before that. I just can't believe his talent disappeared overnight. Even after the first few games, he did not perform well which indicates (1) his injury was still bothering him and/or (2) he was not motivated enough to play to the level he can. If (1) is true, it needs to be determined if he will ever rise back to his 2007 level. If the team thinks not, he should be traded when his value is high due to the ProBowl nod. If it is (2), the coaches better do what they were doing in 2007.
My personal feeling is that this was a uncharacteristic down year for him and he will return to his dominating form next year. At this point, the Bills do have leverage due to his lower performance and would be a good time to extend him (after assessing his health ofcourse). We cannot simply chase away key OL players who we do not consider probowl caliber. Ruben Brown is one example we got rid off and who proceeded to have a decent career with Chicago.
I say, assess his health and if healthy give him a decent contract. Then go ahead and get a real C and RG.