I process all the fabric donated to our local chapter of Project Linus, and I have also received fabric that smelled old. I have tried all the suggestions mentioned here (and have had great success with Odoban). If nothing works and I can still smell the "old" smell, I don't use it. It's sad, but I don't think it's worth going through all the effort to make quilts you don't feel completely good about giving away.
Makes me realize how important it is to use up stash and not let it sit for decades!