Does 'Free Work' Make Grads Recession-Proof?

Yesterday's post on how unemployed grads can most of their work-free hours must have tapped into a bit of a cultural current as today marketing guru Seth Godin wades back into the topic of gaining experience without getting an actual pay check. His assertion: working for free is better than an unpaid an internship and, yes, there is a difference:
I think internships are overrated. Most of the time, the employer thinks he's doing the intern a favor, but he doesn't trust the interns to do any actual thoughtful, intelligent work worth talking about. And to be fair, most of the time the interns are busy hiding, not grabbing responsibility but instead acting like they're in school, avoiding hard work and trying to get an A.
Charlie Hoehn has written a beautifully designed ebook [embedded in this post below] that may change the way you think about this. His argument is that 'free work' is something else entirely. It's done as a freelancer, remotely, without direct supervision and it creates a measurable output.
And while internship's might not meet with Godin's favor, he does see the benefits of free work, calling it "great experience and a resume builder that actually means something." He also concedes, however, that "free work isn't easy to get. Big companies, for example, have bureaucrats that don't often know what to do with a great offer like this."

OK, but I'm not entirely convinced. Internships vary wildly in quality. Why wouldn't the pay offs of free work do the same? The quality of the free work done would depend on the drive of the young person, so wouldn't those that are driven enough to arrange free work projects in the first place also be the ones that would get a ton of benefit out of a decent internship? And has anyone (besides Hoehn) actually done free work and found it beneficial? I'd like to hear your thoughts.