As long as he hasn't played a game you can draft him.
In fact, theoretically a player could have been added to the Yahoo database, owned on a roster, released, and then later drafted in the prospect draft, as long as they haven't played an MLB game. For example, last year Corey Spangenberg was in the database, this year he isn't. Yahoo is a little better about not adding prospects in the low minors now, though.