The story I always heard was that Jay told NBC in 2004 that he was thinking about retiring in 2009. Conan's contract was up for renegotiation at that time, so he asked that he be promised Jay's spot when he left. Jay changed his mind, but they already had a contract with Conan for him to helm the Tonight Show in '09, so they appeased Jay by giving him a 10pm show.

This seems more plausible to me than the idea of Conan demanding Jay's #1 show in 5 years regardless of whether or not Jay wanted to leave...?

Conan never had a shot to stand on his own with a decent lead-in (like Law & Order). Jay had the luxury of finding an audience and finally beating Letterman after being on the air for 2 years.