I'm not sure why I am posting this here instead of in any of the other Nadal threads, but here is my opinion:
I think Nadal's knees are hurt. I think they've been hurting for a long time, but he puts up with it and plays through the pain with shear will power.
The previous diagnosis we've heard for him is tendonitis. I've had that before in my Achilles, bicep, knee, and elbow at different times, and it sucks... and I didn't have to make a living playing tennis.
Because tendonitis involves microscopic tears in the tendon, it's a nagging pain that never seems to heal (unless you stop everything, like Nadal seems to be doing), and can really be bad at random times. However, you can certainly play through this type of injury and pain if you are motivated. Despite this type of injury, it's realistic that Nadal could continue to play at a top level, like he did at the French, especially with the aid of pain killers and anti-inflammatory medications.
I believe Nadal was highly motivated to win the French Open this year, and did whatever it took to attain that title. He was very emotional after that match, moreso than usual, in my opinion. Once that was accomplished, I'm guessing he had a mental letdown. Losing at Wimbledon early just compounded that. I think he's burned out mentally with tennis, and is not willing to play through the pain in his knees.
Rather than keep training, I think he's thrown in the towel, and is resting up for a couple months in hope that the tendonitis will heal fully, and his mind will be refreshed. I've seen this kind of thing happen before with Mats Wilander. He reached the top of the rankings, had some minor injuries, and just lost motivation to keep fighting. Wilander's injuries were not as severe or chronic as Nadal's, but I think the mental aspects that he experienced are the same as Nadal because they both play a grinding style of tennis.
The real test will be in a couple months, after Nadal has taken his break. Will he be as motivated as before, or will he realize that life on the beach is more fun than battling for titles on gimpy knees against opponents that want to stomp on his throat (since Federer, Djokovic, and Murray all have losing records against him, and have scores to settle)?
Of course, as Dennis Miller used to say... that's just my opinion... I could be wrong!