To me one of Powe or Davis had to go, I was getting tired of our undersized lineup. Plus, it forced KG to play center more often, which took him away from his strengths as a PF.
Even if Sheed hasn't panned out, I'd still pick him over Powe for that single reason. Not because Sheed is currently better than Powe (though who knows since Powe hasn't done much this year with his recovery and all), and surely Powe plays with more heart... but the versatility and roster makeup that Sheed provides is enough for me. If not Sheed, then some other big man to fill the backup center adequately, Powe is not that guy.
We really can't have our two best bench big guys be undersized PFs. It works sometimes with Powe and Davis, but it's also quite a liability in others. Plus the whole KG @ PF thing.