Just because a book is old—and has fallen into the public domain—does not mean it has no value. I have found several sites which offer free ebooks, and I will list some of them here.
Manybooks.net has become one of the best-known and best-stocked free e-book sites in recent days, thanks to its integration with the Stanza e-book reader for the iPhone. If you have that, you can search and download titles directly from Manybooks, with no need for visiting the website at all.
Feedbooks.com is another great free e-book site, integrated with eReader on the iPhone. Has a good selection, though presumably many of the same titles as Manybooks.
Formerly one of the best free libraries on the 'net, but has since been eclipsed by Feedbooks and Manybooks. Still, it has a great selection of pulps and classics.
Munsey's draws from many sources, including Gutenberg but also others, and lists, categorizes, and converts its books to multiple formats: HTML, PDF, iSilo, Mobibook, and more. All you have to do is click a link, and the book is downloaded right to you.
The Memoware library is another place to find good Palm e-books, though it tends to be a bit more of a grab bag than Munsey's. Users submit e-books in whatever formats they like, and Memoware sorts and organizes them. Most of what's on Memoware can also be found on Munsey's, Feedbooks, or Manybooks.
Project Gutenberg is the granddaddy of all free public domain e-book resource projects. It has lately begun to provide PDA-readable downloadable formats, so I list it here—but below the others since I think the others have better search interfaces.
The Baen Free Library is an exception to the rule that all free e-books have to be musty old public-domain tomes. Baen sees an advantage in making some of its novels available for free, as a method of advertising and gaining publicity to sell more print books. So far, it seems to be working.
The Baen CD Repository contains all the Baen CDs that have been bundled into first-printing Baen hardcovers. These CDs are hosted with Baen's knowledge and permission, and are free for anyone to download in whole or in part. Many more titles can be found herein than are on the Library.