You trade Manny and make sure the team inks him to a long contract because if you don't he will be playing in pinstripes next year.
As far as why he would sign a long term contract now, it is for the same reason that the trading market for Texiera is lower than it should be. Most of the competing teams are set at the 1st base position so if he cares about winning at all he'd be well advised to sign a long termer.
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Where do you expect him to play, They have an outfield of matsui and abreu on the corners. Both of which i wouldent think the yankees are looking to replace, especially now that they have Nady. They now have 3 DH's with giambi, damon, and posada. I really dont think there is any chance he plays for the yankees.
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There going to need to replace damon soon, posada is goign to catch next year, and giambi is in the end of his career.
you sign TEx, move damon (who may be coming off next year anyway, not sure) and DH giambi. Posada catchs next year, like him and they say he is going to, and you eventaully move Gaimbi when posada needs to DH. not really that difficult to fit in one of the only young power hitters thats going to be avalable in the next 3 years IMO. all those guys you mentioned won't be playing 3-4 years from now, and the yankees know it.