I would like to offer some source material that could shed light on the subject of disposal of Yarhzeit glasses.
The Gemarra (Berachot 39b) discusses the law of Eiruv Chazteros, a rabbinic ordinance that enables neighbors in an apartment building or a common courtyard to carry on Shabbos from one private dwelling to another through the public domain. By way of setting aside a portion of bread on behalf of all the neighbors, and making a specific declaration and blessing, they are joined in common ownership and permitted to carry. The Gemarra then asks, What is to be done with the bread? It answers, Ho-eal v'easavead bay mitzvah, n'avead bay mitzvah achreasay (Since one mitzvah was done with it, we should use it for another mitzvah). Namely, as one of the challohs at the Shabbos meal. An interesting distinction that can be made here is that this idea transcends the injunction not to waste, and reveals that once an object has been used for a mitzvah it acquires a patent holiness, a cholos kedushah which is proper to continue to draw upon.
For example, the lulav (willows and myrtles that are waved on Sukkot) are put away and later used for fueling the fire that burns the chametz (leavened products) on Erev Pesach. The etrog from Sukkot is poked full of cloves and used to make a fragrant pomander for the Havdalah service at the conclusion of Shabbat. The old worn tzitzit fringes, when replaced, are used as bookmarks in chumashim, etc. Olive oil from the Land of Israel is hung in the Sukkah as a representative of one of the seven species of the land. It is then saved to use for lighting the Chanukah lights. In addition, a small amount is squeezed out of the wicks, and is eaten six weeks later on Tu B'Shevat. A tallis is used for the chuppah at a Jewish wedding and then becomes the prayer shawl for the husband. Sometimes a portion of the wine over which the blessings are said during the marriage ceremony is saved and used for the cup of blessing at the brit milah ceremony of that same couple's son.
Here are three more examples, one from a primary source, the second a minhag, and the third a minhag that results from a halakhah.
In the Mishnah (Tractate Sukkah 5:3) there is a description of Simchas Beis Hashoeva, a celebration in which tall menorot (candelabras) were lit that illuminated every courtyard in Jerusalem so much so that a woman would have been able to see well enough by the light to sort her wheat grains. The wicks for these flames were made from the worn out garments of the cohanim (priests who served in the Temple in Jerusalem).
In several books from Hungarian Rebbes, I learned that there is a minhag (custom) of using the leftover challah to make a kugel for the following Shabbat.
The cup of blessing that was used at the third Shabbat meal for Birchat HaMazon is may not be drunk until after Havdalah. That cup of wine, therefore, becomes the cup over which Havdalah is made.
Perhaps the most famous example of recycling is the account of the "Great Act" of Rav Chiya, recounted in the Gemarra (Baba Metziah 85b). The Gemarra bemoans the problem of Torah being forgotten from the world. How did Rav Chiya respond? He planted flax, harvested it, and fashioned from it ropes. He wove the ropes into nets to use for trapping deer. He slaughtered the deer, giving the meat to poor orphans, and tanned the hides to make parchment. He made scrolls from the parchment and wrote on them the five books of the Bible, one on each of five scrolls, as well as one order of Mishnah on each of six scrolls. He went to a place where no one was teaching Torah and taught each of five children one of the five books of the Bible, and each of six children one of the six orders of the Mishnah. When the children had all become expert in their sections, they taught one another until they were all expert in the entire Chumash and Mishnah. These children then went on to become teachers of others, and so on. In this way, Torah was not forgotten from Yisrael.
Why did Rav Chiya do this? Each step of the process, which he carried out according to the mitzvot associated with it, infused his act with an ever-increasing degree of holiness. Planting and harvesting entail their own mitzvot, as well as that of giving gifts to the poor, including peah. The slaughter of the deer, was accomplished through ritual slaughter, using a proper knife, after which the meat was soaked and salted properly. The scrolls of the Torah must be written in accordance with complex laws. With the cumulative kedushah (holiness) invested in the scrolls from all of the mitzvot (commandments) that led up to their creation, he created a mitzvah momentum that carried over into the actual learning and insured the project's success. The same idea, incidentally, underlies the treatment of Torah Scrolls, Tefillin, mezuzah parchments and sacred books that are no longer usable. They are not thrown away, but rather buried with respect that befits an item invested with kedushah. After a person has finished his/her work in this world, the body that was the instrument of so many mitzvot and the sanctuary for the holy Jewish neshama (soul), is buried lovingly in the earth.
A similar idea is found in the account of the Ten Plagues. The plagues of blood and lice were initiated not by Moses, but by Aaron. Aaron hit the water of the Nile River with his rod, turning it into blood and hit the dust of the earth, bringing forth lice. For Moses to have done this would have been considered disrespectful since the water protected him as an infant in the basket, and the dust helped him when he buried the Egyptian taskmaster in it. Moses had, so to speak, a debt of gratitude toward the dust and the water, a consideration that applies even to the realm of the inanimate. From here, Rebbe Menachem Mendel of Kotzk learned an important lesson: Whenever he replaced a pair of shoes, he would carefully wrap the old worn-out pair in newspaper and only afterwards dispose of them saying, "How can I simply throw away these shoes that have served me so well?"
One last source to consider is the mishnah in Pirke Avot (Ethics of the Fathers 4:2) in which Ben Azzai counsels us to adhere to a simple mitzvah just as we would to a more serious one, since we do not know the reward of a mitzvah. And furthermore, "Mitzvah gorreres mitzvah... ve-s'char mitzvah mitzvah..." (One mitzvah leads to the performance of another, and the reward of a mitzvah is the award of the privilege of performing another mitzvah. From here we learn the value of training oneself in the performance of mitzvot, since the more we do them, the less we find obstacles in the way to prevent us. The end result is a constant flow of mitzvah performance!
In light of this, I would propose that the contributors who suggested means of mitzvah recycling were well grounded in their approach. The idea of reusing the Yahrzeit glasses for memorial candles is especially fitting, and those who would use them for drinking glasses certainly have an important mitzvah at hand when they thank the Creator with an appropriate blessing! Perhaps this could ease the feelings of those who were concerned about ghoulishness. Each mitzvah performed would be that much more infused with the kedushah of prior mitzvot and encourage the one performing the mitzvah to become stronger in the performance of mitzvot since "MITZVAH GORRERES MITZVAH."
Sources: Rabbi Scheinerman's homepage
Rabbi Binyomin Adilman, Nishmas Chayim, Beis Midrash for Torah Learning and Jewish Spirituality, Yemin Moshe, Jerusalem