Apparently, the issue regarding Biaggi's employment is the #1 plate. The plate belongs to the rider, but it has great value to the manufacturer. If Aprilia want the #1 plate, Biaggi expects them to pay 7-digit sums of money. Same thing happened after the 2010 season. IIRC, Biaggi demanded one million euros up front for 2011, in addition to his salary guarantee for 2011, and the championship bonuses he was awarded in 2010. Similar negotiations are almost certainly underway, ATM.
The latest report I've read is that he may not retire, but he may sell himself and his #1 plate to another manufacturer. Don't know. Maybe Dorna will switch some sporting codes around to stop this kind of shenanigans in the future.