I play in a 3.5 campaign with seven total players and there is rarely a session when we are actually all present. The character(s) not available go into a "pocket universe"; they do not exist for that session. When the player returns so does the character as if he were never really missing.
With this in mind, they get no XP (if one party member falls too far behind the DM has been known to give them a free level), and no cut of the treasure (if we decide that a particular item may be useful to a "missing" character we might hold onto it). And all the players are OK with this.
Last session in particular our cleric (main healer) could not make it, so we stocked up on potions, distributed the wands of Cure ____ wounds, our druid memorized some healing spells, and we continued on our merry way. We were lucky in that we were at a point where we could take a few different paths so we chose to avoid known combat situations
In another campaign (non-D&D), one of our players is frequently missing, and that character is the one that hired the rest of us for a mission, so it is VERY difficult to not have that character around. So, the GM plays that character, but as minimally as possible. luckily this campaign is more intrigue oriented and the missing character is not very combat oriented anyway. But even then we have a hard time. Most of the time, we end up getting very little done when this player is not present
, but since we are all friends, we use the time to simply hang out