As much as I love KG I think I'd have to consider including him in a deal for Josh Smith and I don't really like his game a whole lot at least at this point.
I do believe with good coaching to reign him in he could be a player very similar to KG and what, a decade or so younger?
Ideally you'd keep KG around to tutor him.
I love KG, too... he's been the heart and soul of this team's defense for four years.
With that said, sure looks like he's the one of the Big 3 who's slowing down the fastest. Has a few spectacular games, then disappears. He's got a LOT of miles on him, and it sure looks to me like it's starting to show.
If you could use KG to acquire Josh Smith, I think you do it. We'd still be a very compelling, competitive team to watch both next season and beyond. You'd have Rondo running the show, Pierce likely still playing pretty effective ball (he doesn't seem to be slowing down as much as KG), you could re-sign Ray next offseason (ditto). Lock up Jeff Green long-term this summer. Spend the MLE to help shore up the C spot. Re-sign Delonte. Might get someone like Hinrich (who'd help alleviate the pressure on Ray a lot) in the Josh Smith deal.
You'd be out of the Dwight Howard sweepstakes, but it's entirely realistic (IMHO) that we'd go into 2012-2013 with a lineup of
Rondo/Delonte
Ray/Hinrich
Pierce/Green
Josh Smith
MLE-level Center TBD
... with guys like Avery Bradley, this year's draft pick, whoever we get with the Clippers pick, maybe giving us some upside.
That may not be a Championship team, but a little luck with a few draft picks or trades, and we're right back in the running. It's a team that's very competitive yet still young and athletic, and potentially (depending on the 5 spot) very good defensively.
EDIT: I'd say, too, that the only way to realistically clear enough cap space to sign Dwight Howard, would leave the team with basically Rondo, Pierce, Dwight, and a bunch of vet-min guys. Everybody else of consequence would have to be gone or playing on unrealistically low contracts. No Ray, no KG, no Jeff Green, not spending the MLE this summer... bupkis.
Dwight would be awesome, but there's also a lot of teams that are going to want him who will be able to offer a very compelling mid-season trade package (better than anything we could offer); Orlando won't let him walk for nothing. I think it's a mistake to not improve the team as best we can NOW, in anticipation of a free agent signing that's about a 5% chance to actually happen.