Well, despite the number of threads on this topic, I like talking about it, so I would think about this:
1) Go hard after Chris Paul (most people agree with me on this). Basically, you need a star player and 2 more all stars to win. Chris Paul or Deron Williams are really the types of stars that could have MVP seasons under D'antoni. Paul is the only player that is even remotely available. If you don't get him, I think you have to just take back 1 year contracts to get prospects (like the Peja/Collison trade). Probably have to give up a couple young players to get Paul or take back Okafor (or both), but I think you have to bite the bullet on that (even without ligaments). Assume you give up Chandler and take back Chris Paul and Emeka Okafor.
2) After that think you try and maneuver for guys with bearable but long contracts that can be had cheap. You could hold off for 2010 for Melo, but I think you could get Iguodala for Curry and you might get Gerald Wallace for peanuts if you absorbed his contract. Assuming you get both of these guys, you have:
Chris Paul
Andre Iguodala
Gerald Wallace
Danilo Gallinari
Emeka Okafor
My only point is that even without signing max free agents, this kind of cap flexibility will allow the Knicks trade for or absorb contracts of a lot of quality players.