I don't actually think there's anything wrong with Papelbon at all -- if anything, he is a better pitcher this year than last year. He's lowered his contact rate, upped his swinging strike rate, and is throwing more first-pitch strikes than he was in either of the two previous years. While the results haven't quite been there, I think he will bounce back (both this season and next).
Also, for all the talk of his fastball velocity, his average is higher than 05-07, and equal to 09, so is it really that big a deal? He's still checking in at 94.7 mph.