I'm in my 4th season with MK Dons, and am in the premiership with them. Winning L1 with them isn't terribly hard, as a couple inspired loan signings and a little luck with your players' fitness are all you really need to win with them. Their standard 4-4-2 works fairly well, but I tend to move to a 4-5-1 with them, as they can be strong in that formation as well.
Easter, Puncheon, Leven, Lewington, Johnson, Gueret, and Doumbe should all be in your Starting XI week in and week out. Baldock, Gleeson, Chadwick, Wilbraham, Gobern, and Howell should have plenty of appearances as well. Teaching one of Baldock, Easter, or Wilbraham to play out on the wing (AMR/AML) is a good strategy to give more people playing time and to be able to rotate your squad better.
As for who is fairly worthless: Sol Davis is terrible. The only reason why he should be considered is because of the lack of depth at that position in the squad (although Adam Chicksen is a good young prospect). Jabo Ibehre, although he's a somewhat decent player at this level, isn't any better than the other three strikers you have, and doesn't have any room to improve, so he's fairly useless. Searle is only on the squad because of a lack of depth there too, so look to get a good young keeper in there ASAP.
The rest of the players that I haven't mentioned are either marginal players or solid substitutes or very streaky players. They'll fit in well when injuries abound, but they don't deserve regular playing time if you can help it. David King, Danny Powell, and Adam Chicksen are your best young players.
Where/How to get good players for this level? Scout as much as possible, look for frees, and affiliate yourself with a Premiership club (Arsenal is a fairly good one to try and get) so you can loan good young players with greater ease.
Where in the squad should you improve? Theoretically, the whole squad. Only 3-5 of those definite starters have enough quality to play in the Championship, the rest will be rotation players at best, so bringing in young talent should be a big priority. As for the season at hand, another good central midfielder will help you immensely, as will a central defender. Take a look around and see if you can find a right back as well, as Woodards is very streaky. Finally, get a young goalkeeper that can rotate in for Gueret regularly, or will be ready to next season.
Beyond that, it's all up to you, but I think that's a fairly good jumping off point.
