Repurpose an Old PC
Instead of donating your old system when you upgrade to a new model, retask it as a NAS box. Its ethernet connection makes converting it into a storage device easy. Don't worry about its slow processor or lack of RAM: CPU speed and memory are less important when you're just sending files. The network's limited bandwidth is more of an inhibiting factor than even a ten-year-old PC's processor speed.
Turn the old machine off, unplug its power cord, open its case (ground yourself by touching a piece of metal first), and remove all extraneous hardware (such as a sound card or a TV tuner card, but not the network adapter, if the ethernet port isn't on the system board). Next, close the case, turn the system on, and enter its PC Setup program (look on the screen for the appropriate key to press before Windows starts loading).
Once you're in the BIOS, disable any unnecessary features: If you won't be attaching a parallel printer, for instance, disable the parallel port. Other candidates for deactivation are audio devices, serial ports, secondary ATA channels, and unused USB controllers. You can expand your NAS PC's storage or back it up easily via USB, FireWire, and eSATA ports, so you might want to keep those. But less hardware means fewer potential driver conflicts and better reliability.
I don't recommend this, but you could add wireless to your pseudo-NAS box via an add-in card or a USB adapter. Data transfer won't be nearly as fast as across a wired connection, and this setup won't work very well for streaming multimedia. But it's a viable alternative in places where cable is difficult to run.
With your hardware pared down, it's time to clean out your unnecessary software. First, create one last backup in case you need to recover a vital bit of data. Then reformat the PC's hard drive, or the drive partition that holds the operating system. Repartition the drive to create a partition solely for the operating system; set the size at the minimum amount the OS requires, plus 1GB or so for a safety margin. Since you won't be installing many apps, this partition won't need much extra storage. Rule of thumb: 10GB is fine for Windows XP or Linux; 20GB will work for Windows Vista. Partition the rest of your drive as you see fit for storing the actual shared data.
After you've finished repartitioning the drive, reinstall the operating system, enabling as few options as possible. Then remove the unnecessary apps and services running in the background that you couldn't opt out of during the installation, such as Windows Messenger. This will save you some CPU cycles. If you uninstall the wrong app, you can reinstall it via your Windows disc, but it's a good idea to be cautious about removing Windows utilities.
Adventurous and/or technically proficient users should consider a minimal Linux installation. Using Linux to serve files to a Windows network ensures that your do-it-yourself NAS box won't fall prey to a Windows-specific malware attack. I like Xubuntu for its small footprint and friendly installation.
After you connect your NAS box to your router with an ethernet cable, you'll want to configure the unit via the HTML setup application in its firmware, which opens in your PC's browser. Most NAS boxes provide software utilities that walk you through the setup process--or you can administer the unit directly. To do so, open your browser, type 192.168.0.1 into the address bar (192.168.1.1 for some Linksys routers, and 192.168.2.1 for others), and press <Enter>. If you're not sure of the IP address to use, open your router's setup page and look in its quick-start guide for the correct address. Log in, locate your router's DHCP table, and note the address of your NAS box (it may be similar to '192.168.0.120'). The entry name will likely give you a clue as to which device you're looking for. (Hint: It's the new device on the network!) When in doubt, turn the device off, look at the table, turn it back on, and look for the new address in the table.
Next, type the address of your NAS box into your browser's address field and press <Enter>. You may be greeted by a log-in screen demanding your user name and password, which you'll find in your manual. More likely, you'll have to create a password. Use the configuration utility to handle such options as formatting and partitioning the device's drives, adding or deleting users who can access the drive, making folders public or private to individuals or groups of users, joining a workgroup, and setting RAID levels. I recommend creating separate folders on your NAS box for different kinds of data (if your device supports it--some low-end devices don't let you partition their drives or even create new folders). You could give family members private folders that only they and you can access. To avoid embarrassing situations, however, make sure you tell them that as the administrator you can see what's in it. Calling any folder "private" is a bit of a misnomer in this regard.