Man, this is about the eleventy-thousandth thread on this, but what the heck, it's fun, so here's how I've done it when I've been in complete control:
1) Make a concerted effort during the season to actually physically cover as many of the better teams in your area as possible. Make your own observations as to who are the better players. Have a staff meeting including all staffers, stringers, photogs, anybody who saw the teams, to talk over the list. If your paper purports to be an authority on prep sports coverage in your area, don't be afraid to act like it. (If not, you probably shouldn't be picking all-area teams.)
2) Solicit "informational input" from the coaches: stats, comments, etc etc. DO NOT tell the coaches you are taking "nominations" -- they will assume that means their "nominations" are guaranteed to make the team. Allowing the coaches formal say into the process just opens it up to all sorts of politicking, favoritism, sandbagging, etc etc.
3) Pay no attention to class standing, academics, etc etc. You are picking the best basketball players in your area, nothing else. Pay no attention to how good a guy, how hardworking, etc etc the player is supposed to be -- according to the coaches they will all be just wonderful young men or women. The only exception to this is, if the player missed any significant playing time due to academic, disciplinary (or these days, legal) ineligbility, do NOT, in any way whatsoever, give him any credit for how good he "might have been" if he had been able to play. If his absence hurts his team, grade him down accordingly. Give him credit for what he did do while he was actually playing in games -- everything else is a zero.
3) Pick a first team (or 'dream team' or whatever fancy name you want to give it) corresponding to a starting lineup in the sport. Five basketball players, 22 football players (plus maybe a kicker), 8 baseball/softball players (plus 2-4 pitchers). Pick the team by position so that at least in theory, your team could actually take the field/floor for a game. DO NOT duplicate positions (4 QBs, 8 shortstops, etc etc) although it's OK to fudge positions a BIT if you need to do so to assemble your team.
4) Pick a second team corresponding to a "full roster" -- 12 basketball players, about 20 baseball or softball, about 50 football players.
5) Throw anybody else on the coaches' "input list" or who you even remember playing decently on honorable mention. We're not talking about a sacred institution here, it doesn't hurt anybody to put 2 extra kids on HM, but it makes 2 extra sets of parents buy a paper.
6) Never ever ever ever pick co-players or co-coaches of the year. Have some balls.
7) Once the teams are selected, run the stories, then "never explain, never complain." Anybody calls to *****, just tell them, "we took all the info into consideration and we made our call." That's another great reason not to base the whole thing on a coaches' vote, because if you don't, nobody can call in demanding to see the ballots.