This rumor has been swirling for days, and has recently been instantiated in the mainstream media, including in a report today by the Washington Post. I'm not sure if its been picked up elsewhere.
Jorge Arangure Jr., in a story about the O's need to respond to the injury of Jay Payton writes:
The Orioles have a standing offer from the Kansas City Royals for outfielder Reggie Sanders, according to a team source, but they've yet to decide whether they'll accept the offer. There is concern the team won't have enough playing time for Sanders once Payton is healthy or whether it's prudent to give up a young pitcher, such as Kurt Birkins or Brian Burres, in exchange for a 39-year-old outfielder in the final year of his contract. Kansas City has offered to take on most of Sanders's $5 million salary for this season. Such a decision could hinge on how long Payton will be out.Interesting. Here's a set of responses from Camden Chat. "Daveyork"'s diary here.