This is not free software, but an interesting idea none-the-less.
When I first started becoming interested in the FreeDOS project, I initally thought it would be cool to have an OS that would revive old PC and make them useful again. The problem larger than the OS, would be making application software up to par with current technology.
However, with something like this, people could essentially run windows XP, on a 386 running FreeDOS. If a community was interested in it, they could buy up 100 old pentium machines, and 1 nice dual processor xeon or something, and assuming the load was small, have 100 decent workstations. Although, I think the clients need some kind of license from microsoft, so I suppose its not a peferct solution, but still an interesting idea.
A local school district does just that to save buying windows licses ... they have a couple Citrix Winframe servers (what WTS is based from) and use the old 486 & Pentium systems to run apps from it. This has the advantage that there are Winframe clients available for DOS, Windows, Mac, and Linux.
If you prefer Linux, see also rdesktop.org