For my take, I think you have to pay Yao the money, because if you don't, someone else certainly will. There aren't that many big centers around, and Yao Ming is the best of them outside of O'Neal. And a big center is always a big advantage.
In doing this, the Rockets have locked up half of their core. Lock McGrady up, and you've got the other half. And that's what the Rockets need to do. After that, it becomes surrounding them with the right pieces.
How many teams have done that, Joe, but killed their future in doing so.
Examples:
Jazz locked up AK47 for the same reason. Is he really worth it?
Grizz locked up Gasol for the same reason. Is he really worth it?
Sonics locked up Ray Allen for the same reason. Is he really worth it?
Philly locked up Dalembert. Is he really worth it?
Atlanta locked up JJ. Is he really worth it?
We have seen many players "locked up" for huge longterm deals and they fail to help their team reach the promise land. Many of them fail to even rise to their expectations and promise -- and what they end up doing is killing their teams long-term chances of competing.
Granted, someone would have paid Yao the money -- that's one of the things that I think is wrong in the NBA today. Owners are spending prime money for players that aren't prime players. And it kills franchises! Of course, I guess that's their choice -- I would just like to see owners pay players what they are worth, not the overinflated prices (esp. for big men) that the NBA dictates.