Just because there is no cap doesn't mean there is no budget. The Red Sox have very high revenues, but they don't have a money tree. A $20 million a year contract absolutely keeps you from getting other players you'd like.
That said, Manny's contract might be high, but I'm sick of reading people talk about it like its the worst in baseball. He makes more than he would get as a free agent, but he produces like a top player in baseball. Most teams have contracts that hurt more than Mannys. How about Jim Thome in Philly last year, Tom Glavine and Carlos Beltran for the Mets, half the yankee roster(Bernie, Jeter, Giambi, Pavano, Jorge, Wright), Pat Burrel for philly, J.D. Drew for LA, Ordonez and Pudge on the Tigers. And thats probably only half the players that are more overpaid than Manny. At least our overpaid guy produces.