Excellent question! I've been trying to figure it myself. Sure, Vin Baker's contract was onerous, but he was their only PF and they traded him for a backup PG. Here are the possible explanations. 1. (Most likely) They want to rebuild. This is consistent with them not extending Gary. Maybe they'll try to trade Kenny and Glove for young talent/picks or if that fails will let their contracts expire and look for free agents next summer. Also, obviously they are not going to rebuild around Rashard but would like to keep him as a complimentary player for a reasonable price. 2. They are not done and will be trying to trade kenny for a legit PF. 3. They are morons and don't know what they are doing.
What ZRB said... Getting rid of Baker's long, and overpaid contract, allows them more freedom to offer Lewis more money.
If they are indeed trying to rebuild, they should trade payton to a team for a young star or draft pick or keep him until his contract runs out next year and sign a major free agent. Either way, I think they need to keep Rashard in order to bring in good talent next year. He's a good person to try to build your team around.
In addition to what others have said, Kenny Anderson is off the books next year. That opens up cap room to make a splash in free agency next off-season, possibly to land Jason Kidd.
