It was rumored that the Nuggets were trying to get the Cavs involved in a possible trade and it seems to make sense. Cleveland had the necessary assets to make them a good trade partner in a 3-way deal.
1) They have a massive trade exception from the LeBron James sign and trade with Miami. This will allow Denver to shave salary from the current season. I know they want to rid themselves of K-Mart's contract but its more likely they can get rid of Nene's in a deal with the Cavs.
3) It was likely that the Nuggets wanted a more proven young prospect than Derrick Favors. Anderson Varejao was likely who they asked for. Cleveland probably countered with the offer I mentioned above in the ESPN Trade Machine link - Antawn Jamison and J.J. Hickson. Taking Jamison would not have accomplished what Denver wanted to do ... namely getting under the luxury tax threshold and cutting salary this season.
If they can get another team willing to take on Jamison's contract, a revival of the Melo to Nets trade (without giving up Favors) could be possible.