I have used free online classifieds in the past, and they can work quite well. That's why I've been gradually collating a list of free classifieds sites for Aussies.
These sites seem to pop up pretty regularly, so I do a search for new ones from time to time. I just did another one, and found a site called iNoticeboard. This is a local classifieds site with a difference: You don't see any ads or categories on the main page. Instead, you enter your postcode, then place your ad. It makes for a much simpler interface than traditional classifieds.
I'm not sure if people will find that appealing or not. In any case, it's definitely original. It's only just started so it will be interesting to see how it goes.