Nene's been playing better as well and JR Smith gives them a pretty decent top 5. I'm still not crazy about their trade of Boykins for Steve Blake, but Blake's played decently for them. They've got a fairly deep bench with Reggie Evans, Najera, Diawara, Kleiza & Dermarr Johnson (although none of those guys are great offensive players).
I think they can rebound and take the 6th seed from Houston (since Houston can't stay healthy), but it will take them 2-3 weeks to work AI in with Carmello. I caught a little of their game against Seattle and the Nuggets struggled to put the Sonics away. The game was close going into the final 2 minutes, mostly thanks to some great shots by Ray Allen. It'll be intersting to see how good Denver can be and how AI & Melo co-exist (if they can).