First off, I think the Broncos would make a huge mistake cutting him. The one thing hurting Kelly as the backup is lack of experience. But you also need to ask yourself what was he doing with his time last year on injured reserve. Was he doing what Peyton Manning would likely be doing, improving his skills, learning the plays and studying game films.
He needs to get some time playing on the 1st team and going up against the 1st team defense, to see how he does.
Now it might be wise to sign a quarterback who was cut by another team who has experience.
One this is for sure, Lynch has to go