Yep. Fix it up and give it away. Clean it up, wipe drive, put an OS on there and provide the install disc as part of the gift, (sometimes involves buying an OS but I'm willing to do that).
I most often am giving an old laptop to some family I know or a friend knows, so I am also willing to help the recipients learn to use it if they're not computer-savvy or not used to Macs.
If the used machine is going to a kid, I always ensure the parents have a little insight into potential issues like the kid possibly getting into online activities that are not prudent, safe or legal, etc. After that it's their problem, not mine, but it's amazing to me how many parents don't have a clue what their children actually do and can do online.
Anyway I would not feel right about just giving the machine to a not very tech-savvy family without having a bit of a talk with the parents. I do always mention cyberbullying, and I say that to the kid in front of the parents so that the topic is out there from the get-go. Then if the kid is later bullied maybe he or she will phone ME up sometime, if unwilling to talk about it with a parent. That kind of stuff can happen and the only safe way to deal with it when it escalates to threats of physical violence is for an adult to involve the police.
Anyway I have given away a bunch of machines and I now know of at least two cases where not only did the recipient go on to buy other Macs but also got their friends interested enough to switch to Macs.
As for my REALLY old machines, the doorstops of my Windoze days, I think they are upstairs in a corner of the spare room, and I keep meaning to take them to a free e-waste recycling day. Maybe 2009 is the year to kiss that old Tandy box goodbye...