Great thread! Since you asked for some successes/horrors, I'll post a few of my own.
A few years back I mixed my first feature film for free, squeezing it in late nights/weekends between my other duties at work. A few months later, the film debuted at SXSW, got a distribution deal with IFC Films, and the director came back and said, "Hey, check it out, now I have some money for you! Thanks again!" Success! A great experience, some exposure and even some money!
Here's an epic fail:
Last summer I agreed to mix a friend's short film at a time where I was extremely busy with paying gigs. I pushed it off for months until she pressured me to spend some time with it.
The production sound was pretty terrible - the lavs were unusable with earth-shattering hiss and tons of clothing rustle, dropouts, etc, so before I began digging in to a dialogue edit, I told her, "Just so you know, I'm going to use the boom mics for your film - there's a little more ambient highway noise, but the tonal quality of their voice is much more consistent and natural." So I proceed and mix her film over the next few days, send it to her and get a laundry list of changes - fine, acceptable. She comes in, spends a day with me and we address those changes, sometimes dipping into the lav tracks to salvage a line, etc.
A few days later, she comes back with another laundry list of notes and says that she'd like to start over and see what we can do with the lav mics. I tell her no way - I TOLD you why I decided to use the booms, if you don't trust my professional judgment, that's fine, you can take it to someone else, but I can't continue working on your film for free any longer.
So she questions my motives (apparently I only do what I do for the money...?) and my integrity - I make a few of her fixes and send her on her way - friendship ruptured. Fail.
So lesson learned - I would tend to agree with a lot of the above. Work for free if it will cultivate a lasting relationship, if you are excited about the project or if you need some experience in a new field you don't have exposure to. DON'T work for free because of guilt. That will never work.