There are good arguments to be made on both sides of this issue. In this case though I think not releasing him is pretty harsh given that (1) he first asked for the release in February, so they would have had the Spring period to recruit (it's not a situation like Isaac Hamilton where the team only found out over the summer) and (2) the reason the kid wants out of the LOI is because he 'blew up' and it became apparent that he has the opportunity to play at a much higher level of competition (I'm pretty sure if Jason Capel had signed an LOI with Hampton instead of UNC, and during his senior year got high major buzz that suggested he could probably go to UNC, he'd have wanted out of his LOI too).
In any event, I think schools can grant a release as to recruiting without granting a full release. I don't see any excuse for App State not to do that here. You have to at least let the kid talk to people and figure out his options, even if you're bound and determined to make him sit out a year.