Watching Wolfsburg vs Schalke highlights and I'd say Luiz Gustavo is worth every penny. PL myopia never ceases to astound.
I'm starting to believe that Gustavo simply viewed Wolfsburg as the better option, there was nothing Arsenal could have done. He knows the league, gets to play with his mates Naldo / Diego. Gustavo is said to have enjoyed his time at Hoffenheim and appreciates smaller clubs. Overall it just sounds like him & his family simply prefered staying in Germany (for example they speak fluent German).
Furthermore VW could easily pay his salary demands and might have offered much more than Arsenal. It's rumoured to be 8m a year, which makes him one of the top earners in the Bundesliga, normally only Bayern pays wages like that (Bayerns big stars are on 10m contracts ,with Götze (and maybe Ribery) sitting at 12,5m). I think Gustavo actually earns more now than any Dortmund player does.
I'd say keep your head up Arsenal fans, there was nothing Arsene could have done and with a few buys your squad should easily earn a Europa League spot.