Here's a sweet site I just ran into called MeeGenius. The site contains a library with books for kids that can be read on the site itself, over the iPhone, or through the iPad.
The books come with audio playback and word highlighting, and can be personalized just the way you like them. Meaning, your kid's name can be added to the book story in a snap. For example, you can change the character names in Little Red Riding Hood to the original names in your family and make the story your own.
The children's book reader app for the iPhone, iPod Touch and iPad has the same functionality, (audio playback, word highlighting and auto-play). The books are displayed on a digital bookshelf and your child can simply choose his favorite book when the app is launched.
Best of all, you can read all the books at the site for free. Or download the iPhone/iPad apps (for a decent price).
Click this link to visit the MeeGenius Library at http://www.meegenius.com.
Book By You
Now, if you're looking for something for your sweetheart, this site has something you'll find very interesting.
"Enjoy the adventure of starring in your very own personalized novel! You co-author our books by providing the names and features to include in your personalized novel. These are full-length, 100 to 200-print page books that look and feel just like classic paperback novels."
For two years, I got one of these for my wife for Valentine's Day and she loved them! I highly suggest them to anyone who's looking for something different for that special someone.
Click this link to build your own book at http://www.bookbyyou.com.