This has always been the most likely scenario. The labral tear stuff is just the tip of the iceberg and may be somewhat irrelevant at this point. If he really has impingement, IT has likely had a labral tear for many years (as I've said before, there is essentially zero chance he was knocked out of the playoffs with a labral tear).
He probably has fairly advanced arthritis, and had an acute exacerbation with bone bruising and fluid buildup so that he couldn't play anymore. The arthritis isn't going away no matter what. And fixing the labrum probably won't do much if its been torn for awhile and the arthritis is already bad (hence no surgery).
The truth is he probably already had bad arthritis and still had an incredible year last year. So in theory he still could have some elite seasons left in him if it doesn't progress too quickly. Unfortunately the overall clinical course is one of progressive degeneration, its just very hard to predict how quickly it will go. He might need a new hip at age 40 or age 60.
I dont blame Danny and company for not wanting to risk big money on a player his size with all those red flags, though I do feel badly IT. At least when a guy like Matt Kemp got traded and his physical showed arthritic hips he already had gotten his big payday.