The biggest problem is that the teams they could trade him to don't really have what the Knicks would need in return, the Rockets sort of do with Capella but with how good he's played I don't know if they'd even do it.
They could have gotten a dope trade from the Suns had they not given him a NTC, probably Warren, Morris and Booker for him.
at this point does it really matter what the return is? get the picks and whatever young pieces you can get before, as you said, his value is completely gone. i've been saying the same thing as his contract and play is just going to get worse after this year and he will NO ONE that wants him for what he'll be paid.
right now you could still at least get rid of him and focus on the next phase. with him there's no hope. i know they don't have their pick this year, but it won't be the end of the world for them to not do well this year and just start the rebuild now/focus on porzingis development. i honestly don't even think they'd be a bottom 5 team with the nuggets, lakers, sixers, blazers, and nets being worse. that might be stretching it a bit, but even with melo they're not coming anywhere close to the playoffs in the improved east.
after starting 8-6 they're 2-8 in their last 10 and have gotten blown out and lost to some pretty bad teams. i don't think there's any reason to keep pretending.