Let's start at the very beginning, a very good place to start: when Alex Smith got injured, there was some back-and-forth about whether or not he was healthy. While this was going on, Nolan made the occasional subtle and not-so-subtle dig at Smith for not being sufficiently tough. Cue speculation and rumormongering approaching Brangelina levels. The Merc apparently had heard some other Niners joining in on the Smith dog pile and asked Alex about it. Alex went a wee bit on the ballistic side and accused Nolan of trying to turn the team against him, making him play when he wasn't healthy, and for generally being a big poopy-head. This all hit the press sometime yesterday and, well, hello hullabaloo. Naturally, the two parties met and issued statements talking about how their relationship is all :) and not :(
So now you have the franchise QB fighting with the Face of the Franchise and, no, that's never a good thing.
The question of what to do now has landed on the not-very capable laps of the York's who have to figure out a way though this mess. They now basically have three choices: negotiate some sort of detente between the two, get rid of Nolan, or get rid of Smith. Ideally, the negotiation thing would be easiest way out of it but maybe not the best solution. So, then, who should go?
Arguments in favor of keeping Nolan: He looks really good in a suit.
Arguments for keeping Smith: the Niners gave him a lot of money.