The talks of him going to NJ being "dead" is just for the sake of The Nets organization not wanting their young core worrying about their future w the team during camp, so I would not count them out, in fact they are probably still being hyper agressive on landing Melo.
But, if they don't land him by openining night they likely won't get him this season. Reason being is that they will likely be off to a rough start this season thus eliminating any possibility of them getting Melo to sign off on an extension if he is traded during the season to them, so the key for them is getting him now....plus if they do get off to a good start how willing are they to trade 2 starters (one being their only PG) to get a player they can make a strong run at in the off season.
You're right, come the trade deadline all the leverage will be in Melo's court because Denver won't wanna lose him for nothing and could at that point easily force a trade to The Knicks and at that point The Knicks could offer much less, them demanding a couple of picks is less likely (our 2014 pick will probably due just fine) and they will have to take what we offer them pretty much (with in reason of course).
But we have to be seriously in the playoff mix ourselves or Melo will be hesitant to sign an extension with us too.
Chicago is only out of the mix because Denver isnt taking Deng's contract, if they can find a 3rd team with an expiring deal for Deng then they are for sure in the driver's seat....but that is a lot easier said than done!