The Yankees already have Damon, Gardner, Melky, Nady, and Swisher in the outfield(assuming Matsui's knees stay the way they are).
If the Yanks signed Manny, we'd have to reshape our entire roster: trading at least one of our spare outfielders. Not to mention, Scott Boras would probably ask for the most outrageous contract in the history of sports from of the Yankees (knowing the Steinbrenner's are on our side).
Another important reason to avoid Manny is his age. He turns 37 at the end of May, and the Yanks have been looking to get younger for the past couple of years. Getting rid of Melky or Gardner would not help the cause.
I am happy with our current team. Cashman did a great job of addressing our biggest offseason needs (SP and 1B), and I am definitely looking forward to the AL East race this year.
Although I've always been a fan of Manny's antics, plus he did grow up in the Bronx, it is just too late in his career for him to dawn pinstripes.