Milbury has little to do with ownership's reluctance to pay a player millions of dollars to not play for the team. Buyouts are not generally the purview of the GM. That's an ownership call, and a hefty buyout cost is a tough pill to swallow for most sane people. The GM has to work within the parameters that ownership lays out, such as a budget and in Milbury's case, a significant long-term contract.
How does a team-elected arbitration work? Can you only take a player entering the final year of his contract, or does that matter? If you could take anybody, wouldn't Milbury arbitrate him? Surely he'd get reduced again.