If I were Bruyneel, I would have gone with Danielson. Here's why:
Reason #1: DC was gunning to win the overall, not only to win the Stage. Given that, Danielson had to gain less time on three key rivals than LA in order to win GC. This shows Bruyneel and DC's ambition, which has always served the team well.
LA, even though he is not in top form, probably had a better chance, before the stage, to win the stage. He is much more experienced than Danielson and probably could have beat Leipheimer and Landis. However, Bruyneel was not thinking of just the stage. He wanted that, but he also wanted the GC win. To do that, he had to slightly reduce his chances of winning the stage, as Danielson is less of a proven 'sure win', given his more limited record and less demonstrated strong abilities to react well under pressure. Bruyneel chose to go with that because he wanted to MAXIMIZE HIS CHANCES OF WINNING THE GC. AMBITION. What DS would have said to LA in 1998 that he should try and win the Tour and focus on that?
One who has sufficient ambition and who is smart enough to make the perfect strategic plan, which began the day before with Chechu's long breakaway. Obviously, that Stage 4 plan had three beneficial outcomes: (1) the obvious one of forcing Phonak to chase and wearing Phonak down, (2) increasing the chances Landis would be dropped (which did not materialize), and (3) putting in place an "insurance policy" of at least taking King of the Mountains jersey overall, in case DC did not win the overall GC.
As discussed above, the below were GC standings after Stage 4 and before the Queen stage:
1 Floyd Landis (USA) Phonak Hearing Systems 16.47.29...
3 Bobby Julich (USA) Team CSC 0.28
5 Levi Leipheimer (USA) Gerolsteiner 0.50
6 Tom Danielson (USA) Discovery Channel 1.00...
9 Lance Armstrong (USA) Discovery Channel 1.42
10 José Azevedo (Por) Discovery Channel 1.53
Danielson had to do three things to win the GC (not the stage): beat Landis by at least 1'01, Leipheimer by at least 11" and Julich by at least 0.33".
LA had to beat each of those people by 42" more than Danielson had to. So, LA had to beat, for example, Leipheimer by at least 53". If I were Bruyneel, I would have been most worried about beating Leipheimer, rather than Landis and Julich.
Reason #2: If DC does not win stage or GC, then LA is not "humiliated" with having tried. In such case, LA gets the kudos of having tried to set up Danielson for the win and it was just Danielson who didn't come through. This was, if applicable, only a very minor reason for choosing Danielson.
Reason #3: LA had just announced retirement. If Bruyneel could pull off a Danielson GC win, it would signal that DC has the ability to nurture new talent and alleviate what must be fairly significant concerns DC had about what would happen after LA retirement.
Reason #4: Set up motivation of Danielson to work for Salvodelli in the Giro. If Danielson has gotten the benefit of major riders' teamwork and working for him, he will be extra motivated to help Salvodelli in the mountains -- an area where that man clearly needs help. There will only be J McCartney and Danielson in the mid-to-high mountains. True, both are at least good climbers (or better), but that's not the usual posse of climbers for a DC Grand Tour leader.