I too have mixed feelings about fanfiction. Actually it is how I got into writing in the first place. Way back at the beginning of high school (long before people "published" their fanfics on the Internet) I started writing Star Trek stories. I only actually shared them with an English teacher who was very supportive when it came to developing my writing abilities. I never shared them with anyone else, and in truth, the stories are long gone now.
In that respect, fanfic can be a good thing. I learned a lot writing those fanfics. Let's face it, character creation is a very specific skill. Fanfics can't help so much with that, but they can help with pace, plotting, etc...they can be very good learning tools.
Now, I do have a couple of stories about people who take fanfics too far. First of all, I've tried reading fanfics on the Internet, but was just never able to get into them. Too many people who do "publish" their works seem to think it gives them some credibility. Here's a couple of examples (one annoying, one a little bit funny...plus a third).
First of all, Battlestar Galactica. I came late to the party when it came to learning about the "reimagined" series...I learned of it shortly before it came out. Once I did, I started digging around and stumbled across the Sci Fi discussion board on the subject. Ron Moore posted there.
Along with Mr. Moore (and a large group of enthusiastic participants) there were a number of hard-core fans of the original series who had strong views. Some were very intelligent, but most either didn't understand how television works or were the sort of people we're talking about (fanfic writers). For example, Ron Moore pitched the idea for the new series and it was approved. After this, people started demanding "Why aren't you listening to us and continuing the original series?" These are the people who don't understand how television works...put bluntly, Mr. Moore was being paid to do the new series...once the contracts were signed, that was what they were making! Still, these people weren't the big problem.
I'll just mention one of the people in question. This is a guy who regularly mixed it up with Mr. Moore. Every time anything was posted about the new show, the guy would retaliate with several posts...trying to fight with Ron Moore. One day he personified the particular breed of fanfic writer we're talking about. Mr. Moore had answered a question the guy had posted (looking for a fight)...he answered the question quite intelligently. This is how the guy responded. "You are a hack. You know absolutely nothing about writing. I've written over 30 Battlestar Galactica fanfics so I know what I'm talking about!" He made it quite clear that his fanfics meant he was a "real" writer, while Ron Moore (who had more credits than I'm going to list) was a hack...I think that speaks for itself.
The two others were friends in high school. First was someone who wrote a Star Trek script where he cast himself as captain. He was convinced he'd found a way to beat the Kobyashi Maru (I won't get into details) and wrote a script to show it. We were going to a convention a week later, and he was going to take the script along and show it to everyone he could. I pointed out why this story just wouldn't work. At first he reacted with anger, but after a couple of days my words struck home, and we saved countless "victims" at the convention.
The other friend wrote a Next Generation fanfic shortly after the series aired. He wrote it for English class, and got a good mark for it. He felt this nineteen page story was good enough that he should send it to Paramount...he was convinced that it would be the best episode ever made. Now this was one of those "wishful thinking" sort of scripts. He called it something like "The Romulan Plot" (it involved Romulans and time travel). However, all of this stuff, all of the action, was really just window dressing for the true purpose of the story. If I were to give it a title, it would have been called "Get Wesley Crusher Off the Bridge".
So to sum up, you can learn from fanfics, but (as others have said) please don't dump them on the world!
Oh, for some other interesting fanfic-related stories, see if you can find a copy of Bjo Trimble's "On the Good Ship Enterprise" at your local library. She worked in the fan mail department on the original Star Trek, and has some interesting stories about people who used to send in their writings.
Keith