Trading for Felton is a very surprising move. With Felton and Kidd, it does seem to mean that the Knicks will not sign Jeremy by the Tuesday deadline. From a basketball standpoint, Jeremy is clearly better than Felton. Financially, it doesn't make sense either given the revenue that Linsanity has brought to the Knicks.
One possibility is that the Knicks are looking ahead to next year when they could try to sign Chris Paul as a free agent. That's the only possible angle I see for why they would trade for Felton.
If the Rockets succeed in acquiring Dwight Howard, then the combination with Lin would be fantastic. The Rockets have the type of assets Orlando is looking for: young players, draft picks and cap space to absorb some of their long term big contracts. With Bynum unwilling to commit long term to Orlando, I see the Rockets as the leaders in the Howard pursuit.