Well I am George's antithesis as a Yankee fan.
My first thing would be shop Sheffield. See what you could get for him, preferably searching for starters. He is a great hitter who doesn't make a great hitters salary. He is a cancer to the team with his mouth and is selfish and is an anti-Yankee. If you could pull Burnett or Schmidt in a three-team swap while giving up Sheffield, you have to pull the trigger. This obviously leaves a huge hole in right-field, but I would be very willing to give up talent such as Melky Cabrera, Edwardo Sierra, Scott Proctor, etc... to acquire a stop-gap rightfielder. The resurgence of Jason's bat makes him expendable
I would obviously invest more money in the scouting department, international and internal. Let this year play out without Sheff and with the pitcher. If the pitcher plays up to some sort of quality, sign them, three years the max length. Avoid trading Duncan (first base in a few years), Cano, Cox, Hughes, Carl Henry, and a few other assorted recent draftees and 19-20 year olds. A system rebuilding process must be completed.
Resign Matsui at all costs. Trade Posada at all costs and then sign Ramon Hernandez. If we sign Ramon Hernandez that leaves an obvious hole on the San Diego Padres roster, as far as the catcher position goes. Trade him there perhaps, while picking up most of his contract.
Here is a strange move I have thought over time and time again. Move Derek Jeter to centerfield and put A-Rod back at shortstop. Although this is very sketchy and still leave a big hole, I think Jeter is more of a centerfielder than a shortstop and A-Rod is the best fielding shortstop in baseball next to Vizquel. This puts Alex back at short. Now, with the Padres so very down on Sean Burroughs, perhaps maybe he would be swapped for Posada. Maybe he would flash more power with the short-porch in Yankee Stadium and perhaps the gap in death valley would help him push his average up
...I'm not done, I'll update it later.