It sounds like the 49ers have two options. The first is to place him on the Injured Reserve (IR) list and keep paying him for the second straight year. The other option is to work out an injury settlement and release him.
Jay Moore was a guy I was intrigued with before the 2007 draft and was excited when the 49ers drafted him. I think it was more because I had done the scouting report on him in January, so it felt sort of like a "find." However, his brief NFL career has had some pretty significanty setbacks. Considering the 49ers have him under contract I say let him spend another year on IR and give him one last chance to win a job next season. In the meantime, I need to do a little more research into the intricacies of the injury settlements.
Best of luck to Jay Moore and hopefully he has a speedy recovery.