Important Upcoming and Relevant Chanukah Halachos
There is a difference between Tashmishei Kedusha that contain the Name of Hashem (i.e. Mezuzah) and mitzvah items which do not (i.e. Tzitzis). By Tashmishei Kedusha we apply the rule of "מעלין בקודש ואין מורידין". However, by Tashmishei Mitzvah, objects of mitzvah, there is no such rule as long as it is not used for a disgraceful activity (i.e. cleaning a toilet with a Talis Katan), even if it is worn out and not used anymore, as explained in halacha (1), based on the Gemara (2).
Lighting Menorah. One can ask an obvious question: Chazal tell us (3) that the reason we light one candle on the first night of Chanukah and add an additional candle each successive night (like Bais Hillel) is for this very reason - "מעלין בקודש ואין מורידין". However, in this case we are talking about mitzvah items and not kedusha items, and yet we still apply this rule. This seems to contradict the above-mentioned Gemara. The answer is that the Chanukah Menorah was made similar to the Menorah in the Bais Hamikdash. One is not permitted to derive benefit from the Chanukah lights and the Ran (4) explains that the reason is because the Sages made them similar to those in the Bais Hamikdash. These holy items of the Bais Hamikdash were considered items of kedusha even if they did not have Hashem’s Name in them.
The “Yeshivishe” Answer. There are two separate halachos under the same name and general concept. One, in the "חפצא" (the item), that we may not demote it, which is learned out in the Gemara (5) from the pans of Korach’s men which were elevated and became part of the Mizbeach (altar). Two, in the "גברא" (the person), so even where there is no demoting of the item, the גברא - the person involved - should do the mitzvah in a manner that shows he is elevating it. This is mentioned in the Gemara there regarding the Lechem Hapanim (loaves of bread) that were laid down on a golden table. This second category - "גברא" - is what we are doing by adding one light each night and elevating it, and it applies even to Tashmishei Mitzvah like נר חנוכה. This is learned from a different case where Moshe Rabbeinu himself finished assembling the whole Mishkan and didn’t allow anyone on a lower level to help him finish it, see Rashi Menachos (6). This entire train of thought is based on the Pnei Yehoshua in Megillah (7).
(1) או"ח כא:א, ש"ך יו"ד רנט:יא (2) מגילה כו: (3) שבת כא: (4) עיין שם (5) מנחות צט. (6) שם ד"ה ויקם (7) שם