A
plugged nickel (or any other plugged
coin) is one where the
metal of the center has been removed and replaced with a cheaper metal. (This happened most often with coins made of
gold and
silver, as the metal could be melted and sold for its intrinsic value. Perhaps a nickel was useless to plug because there wasn't as much market for nickel, much less the mix used for
U.S nickel coins now.) A plugged coin might be spendable if the shopkeeper or whoever weren't paying close attention to the money you handed them, but if they were, a plugged nickel was pretty
worthless.
Wordorigins.org says the American slang phrase "not worth a plugged nickel" dates back to 1888, while Word-Detective.com has it recorded first in 1912.
Google searching reveals that the Plugged Nickel was also a Chicago jazz club where the Miles Davis Quintet recorded some sets in December 1965, which are now released on a 7-CD set.
Sources:
http://www.wordorigins.org/wordorp.htm
http://www.word-detective.com/061300.html
http://www.geocities.com/PicketFence/7608/sayN.htm
http://miles-davis.com/Plugged/walkin.html