If I release players who are arbitration eligible does that clear me of their contracts since they aren't making anything?

Yes. If you release them before the arbitration hearings, you have no contractual obligations.

If you are planning on releasing them, then it might not hurt to offer them up in WC. Someone might give you a low level prospect or a ML spare part for them. In that case, you get some value.

Just make sure to release them before the end of arbitration day.