The Spurs have offered him a three-year deal at the mid-level exemption with the last year partially guaranteed. With McDyess reportedly retiring in two years, this would mean he would basically be getting a year of paid vacation.
There has been a lot of speculation about weather the Spurs should sign him. Most of the argument has to do with McDyess' age and athleticism. However, McDyess is only 10 days older than Rasheed Wallace, and he is averaging almost 10 points and 10 rebounds a night, which is about three more rebounds than 'Sheed, a category the Spurs are desperately looking to improve.
Also, most of our post players are young; DeJuan Blair is a rookie, Marcus Haislip played only three years in the NBA and then went to Europe, and Ian Mahinimi has never actually been on an NBA team for a full season without being hurt. That's not to say that these players aren't amazing talents, but they are young and need to have a veteran, besides Tim Duncan who can teach them the game.
All in all, I believe McDyess will be an amazing addition to the Spurs. After all, we do have plenty of youth to make up for his age now.