I lurk on a mailing list where there was a passionate debate about internships in the startup. The question was whether or not it was fair to hire unpaid interns to do work important for a startup. I find the topic fascinating, as much of my first startup was initially built by a significant contribution from interns. When managed properly, an internship program can be a tremendous asset for a startup.
As compensation goes, I think it is very difficult to paint with a broad brush by saying things like "all interns should be compensated for their work" or "interns should be happy to have the opportunity." In my opinion, it all depends entirely on the skill set of the intern -- what he/she has done, what he/she can do in the future, etc. I have talked to a lot of undergraduate interns who have no experience whatsoever in our business. While they are talented technically, they have never built software, they don't understand the development process, and they don't understand the discipline of software engineering. I even had someone ask me recently what product management was. I don't feel particularly compelled to pay folks aggressively for learning the basics of our business. It takes a lot of time and effort to teach people while trying to get work done. Perhaps larger businesses can afford to do this -- as big companies are always looking for new, fresh talent to recruit. But you don't necessarily have that luxury with a startup.
Don't get me wrong -- I am willing to pay interns when they are able to contribute as much as they can learn. Productive interns help advance the business -- who wouldn't want that?
Is it too harsh to look at interns from a purely business perspective? I think the best way to help people is to encourage them to learn & be more productive. You don't get that by coddling people. You get it by showing them the way the world works.. by showing them that people are paid for what they contribute. And by showing them that they can advance by committing to excellence & improving every day.
For me, internships are a great way to help people. But internships aren't a social experiment in goodwill & socialism. It's how I was taught... and it's how I intend to pay it forward.