The Chiefs are one of more interesting teams in the league, and could be one of the easiest to rebuild. In my opinion, the following owould be the best way:
1. Be very, very active in free agency and fix your lines.
Sign free agents O-linemen Jordan Gross (LT) and Marc Colombo (RT) to long term deals. Both are under 30. Overpay both of them if you have to and you will). Make gross the highest paid o-lineman in the league if you have to (and you'll have to) - just get them signed. This will also allow you to move Albert back to his natural position at RG and shoudl give the Chiefs an above average o-line.
Then sign Julius Pepper, Terrell Suggs, and Albert Haynesworth to long term deals for your d-line. All are under 30. Overpay them if you have to. Keep Dorsey at DT. The Chiefs will have the cap room to do this, even if you ignore step 2.
2. Clear out the dead weight.
Cut Brodie Croyle, Tamba Hali, MacIntosh, Donnie Edwards, all WRs not named Bowe, Pollard, Tank, Turk, Surtain, and every other project player that hasn't worked out. Try to trade those tradable and cut the rest.
3. Fix the QB position
Sign JP Losman to a two-year deal for near the minimum. Draft Stafford out of Georgia with the overall number 1 pick (which KC probably will have). Sit Stafford for a year at least and don't get him killed.
4. Convince Gonzalez and Waters not to retire.
This will be difficult, but a new regime committed to winning might be able to do it.
5. Don't cut or trade LJ
It makes no sense to cut him and eat his cap hit. Try to get 2-3 good years out of him. Behind a revamped line and with a good QB, he may become rejuvinated.
6. Draft well
Everyone needs to stop pretending Herm Edwards has drafted well. He hasn't, and most of his draft picks will be out of the league when their rookie contracts are up.
Even if the free agency plan above goes to plan, the Chiefs are still deficient at most positions. Stafford in the 1st round, and some mixture of WR, OL, LB, and CB over the rest. Do NOT draft any more DTs, RBs, TEs, or Ss.
7. Clean out the coaches and management personnel
Even if they weren't terrible at their jobs (and they are), you need to do this to rebuild faith in the franchise.
Cowher probably won't coach here (quit dreaming, people). Get Lane Kiffin (at least he'll care about Raiders games). Let him rebuild his staff. Throw a dumptruck of money at Scott Pioli to GM here.
What do you think?