I think it is an interesting idea that falls in the realm of "possible". TP.
The potential downside is chemistry issues, especially given how important a PG is to a team. But Baron Davis and PP are very good friends so maybe less of an issue. Baron's offensive skills would force other teams to cover him, opening things up more for PP, RA and KG. Clearly the Cs need a center, and like Varejao or not, he would be an upgrade over what we now have. Fingers crossed that he recovers from his injury.
It would kill the Cs shot at signing a FA in 2012, but with cap holds in place because of KG and RA, there may not have been that much room anyway, and besides, no clear indication that the Cs would be able to sign a quality FA anyway...
If the Cs are able to get a draft pick as well, that's just icing on the cake.
EDIT: Without the draft pick, this would be an example of the Cs trying to extend the window. With the draft pick, this would be Cs trying to extend the window, while also building for the future.