Personally, I'm encouraged by what Coffey has done thus far. If you take a look at his stats, then I think he's actually been fairly impressive and a bit unlucky.
GB/FB: 2.88 (23 GB and 8 FB)
It would seem to me that Coffey has been unlucky and the victim of a small sample size. If you strike out 14 hitters in 12.1 innings, then there's really no way you should have given up 17 hits. That's just bad hit luck, especially when you have such heavy, heavy groundball tendencies. I think his peripheral stats stack up with ANY reliever in baseball. He's got a 4.67 K/BB ratio and a 2.88 GB/FB ratio. If he keeps pitching like he has been, then he's going to have a very successful season.
I've actually been rather encouraged by Todd Coffey thus far. When his hit luck evens out, then he'll be very effective. Given all that, keeping him in the fold is a very good idea.