With so many versions of the same character, how do you use them? Are they that character, just in different outfit, a new character, or a different character who better fits the figure.

For example PoC General Hawk, is a cool figure, but it doesn't really say General Hawk to me. It says Mainframe.
or
Resolute Alley Vipers, they don't really fit in with normal Alley Vipers, so they've become Cobra Explosive Ordinance Troopers.
along the same lines, Resolute Cobra Troopers have become Cobra Marines.
Red Resolute Cobra troopers are Crimson Guard Assault Troopers

PoC Firefly who looks like an amped-up version of the Green Goblin has become Firefly's heavy support operative. (I'm waiting for the Retaliation 3 Pack Firefly to come in as my primary version of Firefly.)

Since we get so many versions of a character, I use them to build factions. For example, Firefly. I use the classic version as the actual default Firefly (again soon to be replaced), with the comic pack Firefly, and PoC Firefly (which I've been lucky to get 2 each of) and Wraith as his "team" of mercenaries.

What do you guys do? How do you pick your definitive version of a character? I'm still trying to figure out which Zartan I like best. (although his appearance is constantly changing )

As we get more alternate takes, it's definitely more tempting to repurpose figures as different characters. The ones that spring to mind for me are PoC Dusty as Spearhead, since the previous Dusty figures work well for the character. I've also repurposed PoC Hawk, but as Sparks. The 25th Mainframe isn't without it's flaws, but it works well enough, and I'd rather have more characters overall. I headswapped PoC Snow Job, and use him as Whiteout. The TRU exclusive RoC Snow Serpent will likely end up being Snow Wolf once I tweak his gear a bit. Planning to paint them up somewhat, but I think I could probably get away using the RoC Elite Vipers unaltered as Black Dragons. Resolute multipack gray Duke is Airborne v2. Once I dig the figure back out, I want to pop a RoC Ripcord head on the Steel Brigade Delta and use him as the SpyTroops version of Rampage, mostly since I know I won't ever bother getting more than one Delta. Definitely planning to repurpose some of the Retaliation figures, Roadblock and Colton especially, but I haven't figured out who they'll be.

I've done a few. Like yourself, my POC Hawk became Mainframe. The Retaliation Red Ninja from the 3-pack became Slice. ROC Deep-Six became Depth Charge. I also use Retaliation Beachhead as Wreckage.

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I used to give different brand-new codenames for the extra versions of characters, most of them treated as greenshirt-level joes.

Although there were a handful that stood out, like treating General Hawk's General Tomahawk version as a completely different character, retaining the General Tomahawk codename, and also served as a joe general. With its different skintone, I made the character of native american descent.

I also do this.

JOES
Frostbite v3 is White Out
Law v3 is Barricade
Shockwave v3 is Wide Scope
Lifeline v3 is Med Alert

COBRA
Funskool Desert Scorpion is Sand Scorpion
Beachhead v3 is Armadilha
Alley Viper v9 are Shadow Vipers
Secto-Viper are Fast Blast Vipers
Track-Vipers are Coils
Stinger Drivers are Motor-Vipers
HISS Drivers are Track-Vipers
Undertow v3 are Cobra Divers
Snow Serpent v4 is Snow Wolf
Shadow Viper is Blackstar
Toxo Viper v2 are Heavy Water

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I do this too when it makes sense to me. Off the top of my head, I use

- POC Beach Head as Wreckage (Resolute Beach Head is my default)
- ROC Rescue Mission Snake Eyes with the ROC Flash head as Ashiko (unarmored)
- TRU ROC Firefly as Ghost Bear
- ROC Rollbar (though not technically a duplicate character) with a 25th v1 Beach Head vest is Rapid Fire (like the old TRU exclusive 12" figure)
- ROC Cobra 5-pack Duke with Resolute Duke head and Black Out goggles is Black Out
- ROC Pit Assault Duke as Sokerk

I use PoC Beach Head as Wreckage too! Comic Pack Beach Head is my default.
Resolute Scarlett is my Default Scarlett and 2009 5 Pack Baroness is the default Baroness.
I use PoC Stalker with a headswap as my default Stalker. Stalker is too disciplined to do dreds.
I use RoC Deep Six as Lt. Torpedo and a couple of Lt. Torpedos as GreenShirt/SEAL divers.

wow I thought I was the only one who used POC beachhead as wreckage

I have a ton of head swaped customs from the 25th forward style but I do use a fair ammount of figures as straight up different characters.

I use the
TRU Black Ops Duke as Lowlight
Jungle Duke (with snow goggles) as Mirage
POC Desert Duke (w/ Wild Bill helmet) as Dodger
Renegades Ripcord as Extreme's Freight
POC Spirit as Dart
30th Sky Striker Ace as Payload
POC Stalker as Extreme QuickStryke
ROC Desert Duke as Dusty V2
TRU Repeater as Hardball
Officer pack Sgt Stone as Big Ben
ROC Flash as Red Spot
25th Snow Job as Whiteout
poc dusty as spearhead
25th White Out v 2 as Cold Front
ROC Zartan as Slammer – GI Joe MP (Comic Fodder)
Comic Pack (Blue) Firefly w/ helmet and vest as Widescope
Green Ace with Red Scarf as Ghostrider
ROC Torpedo as Wet Down
TRU Green Shirt w/ brown hair and a boonie cap as Crosshairs
Accelerator Suit Duke as ROBO Joe
TRU Desert Pack Zartan as Repeater
Retaliation Joe Trooper as Blaster
ROC Kamakura as Tiger Claw
ROC Pit Commando w/ comic pack video camera as Scoop
Dark Brown Wild Bill w/ outback vest as Windmill
POC Kamakura as T’Jbang
Agent Scarlet as Glenda
DG Duke as GI Joe Recruit “Fifty” from Beachhead’s trainee team
Comic Pack Stalker as AF Jammer
Timber from SE V33 (Red Timber) as Max (a dog in my eyes)
Timber from SEV44 (Paris Pursuit) as Sandstorm, Dusty II’s pet

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I was looking at "Ultimate" Firefly, and he doesn't really strike me as Firefly at least in the classic sense. If I get him, I'm thinking of making him a new character named Jackal.
If Ultimate Duke comes with the alternate masked head, I'll make that character a Greenshirt or Regular US trooper.

That's because it's ultimate Movie Firefly.
Maybe the movie'll change your mind about its worth as Firefly.

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Don't get me wrong, its a cool figure, but the 3 pack Firefly is Firefly.

Some characters/figures, I use them depending on their environment, like for the most part, classic looking Destro is the default, but if he needs to be in a more formal setting, I'll use Reso Destro, or IG Destro if he's with the IGs. I have classic looking Maj Bludd, but I'll use the desert environment Bludd with my Desert Cobra troops.
Same with the Joes, which ever version I feel like using, I'll use, but I do have my default versions of each figure, mainly because sometimes I can't decide which is my favorite version.

Reso Troopers are assault or Troopers, Marines if you will of the Blue Shirts
Reso Ally Vipers are the officer versions of the above troopers
Various Blue Shirts fit various rolls
RoC Breaker is Agent Shaz, an intel officer, part of my urban team
RoC Hawk is General Quaid, commanding officer of my urban troops and intel
25th Night Watch are my ARBCO troopers/officers
O-ring Night Watch are my vehicle drivers (Stinger and HISS Drivers are hard to troop build)
Aqua-Vipers are my not Copperhead Water Moccasin/Sting Raider pilots
Skydive? (guy that came in the wave with Low Light and Shadow Tracker) in the hi-tech sky dive suit is Altimeter
Air-raid is Barrel Roll (until my FSS Barrel Roll comes in, then he goes back to Air-raid)
Snarler Cycle Beachhead is Rampage (with RoC Ripcord head)
Bench Press is Bench Press, but not Rock nRoll
Temple Guardian Snake Eyes is Black Dragon
VvV era Recondo is Bull Dog
Countdown v2 is Booster
DEF Cutter is...ok, can't recall what I renamed him, but it was one of his prototype names
Lady Dial Tone is Dial Up
RoC CC is Dr. Rex, works along with Mindbender and Dr. Venom
RoC Flash is now a Cobra Laser Rifle specialist named Hot Spot
A trio of Neo-Vipers have become Gunship commandos, cruising around on the RoC Gunship
Ret Joe Trooper is an individual named Gunslinger
Hammer Drones from the Ironman line are part of a Anti-BAT task force 9working with Kickstart and the Steel Marauder)
RoC Rampage is Heavy Metal
PoC Spirit is Iron Knife
War Machine from the Ironman line is an Advanced BAT, used like a commander of sorts
Desert PoC Snake Eyes had his visor removed and now he is Javelina
Different versions of Lifeline became Meat Wagon and Siren
Dusty v3 became Mojave
Lt. Gorky that looks like Big Bear is now Wolf
PoC Zartans and SRO Grunt became Pit Commandos
Ret Roadblock is now Rock (original, I know)
PoC Storm Shadow got RoC SS's head and is now Shadow Wind
The Shockwave that looks like Sure Fire is Shockblast as is the RoC Shockwave
Jungle Vipers are called Sniper Vipers
PoC Hawk is now Sparks
The red Vypra figures are minions of the blue Vypra
Jungle Ripcord with A black Beachhead head is Wrechage
I keep my Renegades figures separate from the rest, but Ret Zartan is part of that group

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Right now I'm having to go through and redo a lot of these reassignments, here are a few I know I'm doing right now:
I have 13-14 DG Duke (green) are used as greenshirts.
JvC Frostbite (green) are artic greenshirts
ROC Breaker is a Mossad attache (haven't named him yet)
Various movie Dukes are all gonna be different characters
H.I.S.S. Driver v1 with Flash head and goggles is used as Rip-It
7 Rip-Its used as H.I.S.S. Troopers.
DVD Diver Baroness is Mera.
Vypra twins have a new name I can't remember right now.
And I have been slowly collecting codenames from the deceased IDW Joes to assign to figures as I go or as I custom them.

Now some the reassignments I had before my collection had been stolen:
7-8 JvC Slice were used as Ninja-Viper Trainees.
JvC Mirage v2 were greenshirts heavy weapons.
JvC Dialtone were greenshirt technicians.
Librarian Baroness was an assassin named Naga.
JvC green Fireflys were used as Wood-Vipers (wilderness troopers for when the Range Vipers were too valuable, usually just above Toxo-Vipers).

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I've renamed a few. The green-and-brown camouflage Firefly from the 2000-2002 series became Sniper-Vipers (I just like how the name sounds). The Shadow-Vipers from the same era -- since I'd already came up with my own Shadow-Vipers that I thought more looked the part -- became Fix-It Vipers, Cobra Repairmen, which seems to fit their look well enough. Or sometimes someone will get a promotion. I have several of the standard Para-Vipers, but only one of the movie-colored Para-Viper. Okay, he just became the Para-Viper Commander. Beyond that, I don't really have a lot of trouble with multiple versions. It just depends on what uniform that character decides to wear at any given time, or what special team he's serving on.