There is no way to be fair because no matter which way this is decided someone will be disenfranchised.
Scenario #1: No votes count and Michigan is excluded from the process. If this happens then Michigan gets no say at the convention. It's like we never existed.
Scenario #2: Votes are counted EXACTLY by the original vote. This would silence every voter who did not vote for Clinton because there's no way of telling who each of the "uncommitted" votes were for.
Scenario #3: 50-50 split of delegates or any compromise split: This turns the Michigan delegation into little more than a heap of scraps for the dogs to fight over. The dog with the biggest teeth wins.
Scenario #4: Revote. It's far too late for a revote if the Democratic party wants to have even the slightest chance of winning the election. It would take at the very least a month to put everything in place and get the word out to the voters. Besides the physical logistics, there would be the time wasted in deciding exactly WHO gets to vote. Hillary wants only those people who voted in the original primary, ensuring her win, Obama wants a full vote letting everyone who didn't vote the first time a chance to vote. The DNC wants a caucus so that it can be done quickly and inexpensively. Realistically, it would be nearly impossible to hold a new primary or caucus before the convention due to the wrangling of each camp.
Personally, I'd suggest giving splitting the total delegates and SDs into a 55-45 split in Hillary's favor, or somewhere around there. This should give her the "moral" victory she claims to want without skewing the results enough to alter the dynamics of the race.
The one thing I'm most opposed to is Scenario #2 which would only serve to embolden rogue states in the next election to do the same thing Michigan has done. One of my greatest issues with the Hillary camp is that if she succeeds in breaking the DNC, she will have also broken the Democratic party. Can you imagine what would happen in 2012 if six or more states decided to push up the date of their primaries and used this election as precedent? No court in the land would be able to block them from deciding to hold their contests in December or earlier. We could literally be voting for our nominee two years before the election if things ran this way.
To every action there is a reaction. Anyone who supports the breaking of the DNC needs to remember that.