The M's and the King have avoided arbitration by agreeing on a one-year, $3.8m contract. First-year arbitration players generally get compensated for ~40% of their value, but Felix is only getting 20-25%, so no matter how you look at it (ERA, FIP, tRA, whatever), this is a good deal for the Mariners that saves them a couple million dollars. It's also the first seven-figure contract of Felix's career.
No, the one-year contract doesn't mean that Felix becomes a free agent next year. He's still under team control through 2011. It just means the team gets to avoid potentially alienating its ace in front of an arbitrator. I imagine it won't be long before we hear more talk about long-term extension negotiations. With any luck, Zduriencik won't try to shortchange Felix the way Bavasi did, and we'll be able to keep our ace in Seattle well into the next decade.