Given how fast Cruz exploded on the scene, it is pretty hard to fault Reese for his handling of the situation.
“Never argue with an idiot. They will only bring you down to their level and beat you with experience.” MB Rule # 1
I would have re-upped him in mid-2011 at a bargain. As soon as it was clear that 2010 preseason wasn't a fluke... IIRC he had a bust-out in the Eagles game in 2011. You could have had him relatively cheap.
The longer you wait the more expensive he becomes -- and his ego will be hurt as well.
Reese used to be good at resigning guys early at bargain prices, and we'd sign young players long term at below market value. Tuck is a good example, even though he's falling off he's played for years underpaid.