Small Potato made a post about 404 pages for WordPress. His solution isn’t so bad, but if you want the real deal check out Dax’s F*ck 404′s for WordPress. This great little code snippet will redirect any link juice (PageRank or PR) towards your main hog (index page), at the same time as redirecting your visitors there. This means that if you delete, rename or move a popular post then the links you had pointing at that post will be redirected to point at your index page.
I can’t believe I am actually encouraging normal people to visit Dax’s site.