I've been wanting to make yarn from old T-shirts for some time. In fact, I bought some XL shirts at the thrift store just for this purpose. I didn't realize then it would be best to find T-shirts without seams, so I'm not sure I got the best ones for the job, however, I did find this cool video tutorial that shows you how to make a T-shirt into yarn.
I followed her directions pretty closely in making the yarn above. I used two XL t shirts without side seams and ended up with a total of about 70-80 yards of yarn. I'm not sure what I'll make or if I'll just put them up for sale in Ye Olde Etsy shoppe.
If making yarn out of T-shirts isn't your cup of tea, check out this great post for oodles of other ideas (like maybe 100). I'm saving this link so I can check more of these out later myself: