There is no upside from trading Melo either. Unless Boston is stupid enough to give us a 2018 lottery pick for him.
I don't think Melo is the type of person who would create a circus. He does care about his image, and would not want the negative PR of being thought of as someone forcing his team to do a lopsided trade to accommodate him. And what do the Knicks have to lose? If he misbehaves or proves to be a cancer, they can simply bench him, and let KP, Willie and whatever other young studs play without him, that's a worst case scenario that is not really that different from not having Melo on the team at all.
If you recall, even with all the drama surrounding his departure from Denver, he enabled the Nuggets to get decent value back.