The story that I've been told, and I think has at least partially been reported elsewhere so I think it's probably at least close to true is:
Sanders told Gundy shortly after the WVU game that he intended to transfer for his last year but still wanted to play in the bowl game.
Gundy says OK we understand and that sounds good.
Because Sanders says he's going to play in the bowl game, Gunnar Gundy goes ahead and gets surgery to repair some sort of nagging injury he's had most of the year; this will mean we'll go into bowl prep and the bowl game with only two QBs: Sanders and Rangle.
When the bowl practices start, Sanders is a no-show and communicates (via Dunn) that he's decided he doesn't want to play in the bowl game after all because he wants to focus on finding his next landing spot (taking visits, etc.). Gunnar Gundy has already had his surgery so now we are down to one QB for bowl prep/bowl game.
Fast forward a few weeks as bowl practice is winding down and apparently Sanders hasn't gotten the interest in the portal he thought he would and so inquires about coming back and playing in the bowl game after missing out on all of the bowl prep practices.
Gundy says "thanks we're good."
I don't know if it happened exactly beat-by-beat like this, but I do believe this is the gist of what happened.
People were beating up Gundy like crazy for (allegedly) saying no when Sanders (allegedly) asked to come back, but given Sanders' behavior in the last part of the season, I honestly don't blame him. Remember there's another portal window coming up in May and Sanders may very well have re-entered at that point leaving us in a bigger lurch.
Better to go out and get an experienced QB for next year who really wants to be here, versus dealing with Sanders being wishy-washy about the whole thing.