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Firewall or File Server
Creating a firewalls or file server for your home or office doesn't require that your hardware be the latest and greatest. Even if you have a very old computer, it can still be put to good use as a firewall. There are Linux firewall distributions designed that run specifically on ancient hardware. IPCop is one distro that can be installed and run on a Pentium 386 computer. The SmoothWall firewall can run on a 200 MHz processor with 32MB of RAM and 512MB of hard drive space.
If you have less ancient hardware, you can set up a home or small business file server. A file server will need at least a 600 MHz processor and 512 MB of RAM. You will need a large hard drive to hold all of the files but the rest of the hardware can be recycled. Any Linux distribution can be used for this purpose, choose the one that you like best.
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Creating a Desktop for Kids
If you don't want to buy your kids a brand new desktop, laptop or netbook and you don't want them to use yours, you can give them a “new” computer using old hardware and a small Linux distribution, like Puppy Linux.
Puppy Linux is a compact distribution that can run on a CD, DVD, or USB drive. However, you can also install it on a hard drive. The minimum requirements for the distribution is a Pentium 166MMX processor and128 MB of RAM. Whether you install it on the hard drive, or you run it from removable media, your children will have a usable computer for browsing the web, homework, or just playing games. Speaking of games, there's a nice suite of educational and gaming software created especially for children, called Gcompris. This site has the step by step directions for how to install the software on Puppy Linux.
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If you have additional old hardware than you are not going to put to personal use, there are organizations that will accept your old hardware and put it to good use. Because Linux is free, open source software it can be used to keep the cost down and the organizations can donate more computers to people in need for a lower cost. Two such organizations are the Helios Project and Free Geek. Both of these organizations are based in the United States, but if you search in your area you should be able to find a donation organization.
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Don't send your computer to the recycling bin without first attempting to give it new life. Even if you install Puppy Linux and a few games and give the computer to your neighbor kid, you are helping the next generation learn about computers and keeping a perfectly good computer alive.
It is understandable that you will eventually have to discard some computers, especially when you simply can't find the parts to fix them anymore. At that time, please make sure you dispose of them properly and don't send them to a landfill.