Eugene, very well put.

I personally would arrange a meeting with you, the developer involved, his boss and your boss, and ask him to state why he needs these rights.

Then put a case where you can offer him something like the View Database state on Dev boxes only and maybe UAT, but production is off limits.

If he keeps pushing the case for SA rights simply state that he would also then need to take part responsibility for those boxes where hes grated those rights such as working weekends as part of being on call, doing the mundane daily work.

I would also give him a specific login for this rather than grant his standard network account with SA rights.

You might then see him back down quite quickly.

I'd also set up server level auditing so that if/when he screws up you have him by the soft and dangly things, and you have the perfect ammunition to get his rights revoked or have him removed, and you get the got the added bonus of the fact he did it all by himself. 😉