Some of us go through computers like we go through socks, while some keep them running long after their warranties expire. All of us have at one time or another had to deal with an old (but still-working) computer that needs a new, post-retirement gig. Even years-old PCs can deliver some serious power, so as long as the hardware is all (or mostly) working, here are some great ways to squeeze more years of useful life out of last year's model:
Media center nervous system. It's dead simple to hook up your old machine to your fancy stereo system or home entertainment center. Just pick up a cable with stereo jacks and hook up your PC's line-out to any free line-in. Use a media player like Winamp or WMP for your MP3s and CD playback, and keep it hooked into the net for streaming media like Last.fm, Spotify, Turntable.fm and all the rest. If you want to take it a step further, you may be able to connect your computer's video line-out to your television, though this isn't always possible, depending on your computer. Still, if you can work it, you can watch endless confused-kitten videos from the comfort of your couch.
Networked media storage. If you're happy with your media center (maybe using an Xbox or some other dedicated device), you can still use your old PC as media storage remotely. As long as it's connected to the network, you can use TVersity to serve music, video clips, pictures and more to your media commander or keep it simple with Audiogalaxy.
Linux tester. Many Linux users start with an older machine to avoid the shame of buyer's remorse (or, well, installer's remorse, anyway). Linux isn't a resource hog, so even decrepit old machines can usually handle it with grace and style. If you're curious, it's incredibly simple to install Ubuntu, and much easier than you would think to actually make a complete transition from Windows.
Home security monitor. Your computer doesn't need to pack a lot of punch to be your eyes and ears for you while you're away. As long as it can stay powered up indefinitely and communicate with your network, you can easily hook up a camera or two and either remotely monitor them when you like or get a message if one of your cameras senses motion in its field. You can also keep a backup of the footage in case the worst does happen.
Backup storage device. You do back up your data, right? Whether you've got a subscription-based cloud service or just hope for the best, it's a good idea to do multiple regular backups of your data for all your working computers and mobile devices. An old computer is a great secondary storage option, especially if you've got a high-speed network to transfer data. It's best to set it up to back up automatically (Windows can do this pretty easily) so you don't have to rely on your own attention to make it happen.
If for some reason you don't want to hang on to that machine, consider donating it to a cause you believe in if it still works. If there's just no way to get any more use out of it, you should be sure to take it to a service that can handle recycling the toxic metals and other bits and pieces inside it. Contact your local waste removal folks to find out more.