At the time, he did have options at ABC (Fox was also interested). Nightline wasn't as dominant as it is today, and the network would have had no problems bumping Kimmel. I think their preference was to have Conan on at 11:35, followed by Nightline (Kimmel gets dumped).
Some say CBS was interested too, but I think that's poppycock.
But yeah, he had a legitimate shot to go to ABC against Leno and Letterman. Fox as well if Murdoch threw around enough cash. But NBC thought that when Leno was approaching 60-years-old, it'd be more than enough time to pass the torch. And Leno was the guy who signed off on it. Nobody counted on this.
Personally, I would have dumped Leno. He might carry The Tonight Show for another decade (maybe), but he's getting up there. Besides, if they dumped him now, where would he go? Fox wouldn't be interested. ABC might, but he'd be on at 12:35 (or later, depending on the affiliate). How much damage could he have possibly done.
While I don't think Conan will be successful at Fox, if anyone has a chance on that network, it's him.