Yep, old PCs end up as NPCs all the time. My old PCs usually end up dispensing the plot hooks, while other people's PCs end up being used for flavor. Since I've seen them played and possibly have stats and character sheets, it's easy to role play them and give them a persobnality beyond the generic NPC. I also use real friends and movie characters alot for the same reasons.
Put into my homebrew:
Evenalyn Dramilinus - Elven Fighter/Magic-user who became a minor noble by acting as general for several major battles between countries while a PC. As an NPC, his military exploits are century old history and he keeps to himself, but does supply, outfit and inform low level adventuring groups as a hobby, something he also did as a PC. Not as good as would seem as interaction with major artifact while as a PC drove him insane, gave him meglomania and a dual personality (one good and one evil) both of which are working on a centuries long plot to rule everything. Probably just make his 8/9 levels in two 1E classes carry over as is so he's effectivly 17 level or so.
Nevenalyn Dramilinus - Half dragon elvin Magic-user/Assassin. When I retired Evenalyn, I started playing his son, Nevenalyn, who was the result of the DMs cut scenes (not my attempt at an uber character BTW). Haven't worked out his actual 3E stats yet but probably take dragon bloodline instead of half dragon template. He'll end up being aware of his fathers condition and goals and be aiding as an agent in the world.