I do think it is unethical to trade a player you know to be injured when the other player is unaware of this. You are moving 'damaged goods' in that case. But with Yahoo's designating players with a 'DL', this is now rarely the case.
In this case, people are aware that Prior is currently on the DL. If you offer him in a trade, I think it is fair of you to assume that the person you are offering him to is aware that he is on the DL and injured. It is then incumbent upon them to determine the severity of the injury and to decide if they want to take the risk of trading for him.
You don't need to tell him every rumor that you've heard about Prior's injury. Why would you when the rumors are unsubstantiated? As it stands, the Cubs are keeping things rather hush-hush. In fact, you don't need to tell him anything more than that Prior is currently on the DL.
If you want to trade Prior, make an offer. If you want to be ethical, don't lie if you are asked any questions. If you are asked about Prior's injury, it is fair to simply say that you don't know how serious it is and that you aren't sure when he is expected back. Really, that's all that anybody knows at this point.
"The game has a cleanness. If you do a good job, the numbers say so. You don't have to ask anyone or play politics. You don't have to wait for the reviews." - Sandy Koufax