The Blues handled this really well in my opinion.
Obviously Martin would like to keep playing, and I think he plays at a level good enough to serve as a back-up on many teams in the league. But teams want to develop their young goalies and the market is not there.
He helped the Blues a lot during Elliott's injury (more than just on the ice). They did everything possible to avoid him being embarrassed when Elliott/Allen were both healthy. He was allowed to take a 2 week leave of absence with not much comment while he mulled things over. This front office position was held/created for him, so he can still be around the team and have a more graceful transition than to simply announce his retirement and then sit on his couch.
I really envy New Jersey for enjoying his career. He's proven to be a great personality and was a treat to watch on the Blues, even for a short time. I'm glad he got to hear the roar of the crowd again a few more times.