Reading between the lines, it sounds like Orlovsky was given the option of a reduced salary or the highway. Apparently, he concluded the reduced salary was better than anything he could get on the open market in September.

Which begs the question, if the Texans were willing to cut DanO and eat the guaranteed money, why didn't they just do so and retain Booty as their backup ?

While we are clearly just speculating about all of this at this point, my guess would be that Booty's lack of experience kept this from happening. I think Kubiak just couldn't pull the trigger on going into the season with someone as inexperienced as Booty as the back-up. For good or bad, Orlovsky at least has started/played in a fair amount of games in the league.

I should also add that it reads as though the restructuring came after the signing of Leinart. So, it sounds to me like they were willing to pay Orlovsky when it was just between him and Booty, but when Leinart became available for cheap, they went back to Orlovsky with the restructured deal.