Read this article:
http://slam.canoe.ca/Slam/Hockey/NHL/Phoenix/2009/05/22/9535856-sun.html
while I very rarely agree with Mr. Simmons, he has this one exactly right. Destroy the coyotes, take them out of the league, give their players to the other 30 teams (I suggest a random lottery / draft process, giving all 30 teams equal chance at first pick), and then build a brand new team in southern ontario that would start play this fall.
If you were in charge of deciding this whole mess, how would you resolve it? email me at cjohnson202@hockeyleaks.com and I'll post your responses on the team bloggers blog