How is Indiana not rebuilding? They traded Jermaine O'Neal for a young playmaker, they just picked up two first round picks, and they cleared some cap space. If you don't believe that is rebuilding, I don't know what to tell you.
Indiana is mediocre regardless, yes... but now they are mediocre with young talent rather than being mediocre with aging veterans. There's a difference.
Young players with limited upside
Bayless had upside. They had him regardless of Jermaine O Neal's situation.
Jarret Jack is what he is. TJ Ford is what he is. Brandon Rush doesn't have the mentality to be a star player and constantly looks to take a backseat, he's not a star. Roy Hibbert doesn't have large upside either.
They gave up their best young prospect on draft night.
They got no young prospect with upside in the trade. Heck Indy could have bought Denver's pick and likely still have gotten Hibbert.