E-books for Kids!  The Tumble Book Library is an online collection of animated e-books for kids

FreeLoad Press and Textbook Media offer textbooks free to read (downloadable for a fee)

Project Gutenberg has over 27,000 free ebooks for both adults and children.

WOWIO, modern and lively books free to read online (but downloadable for a fee)

Children's Books Online is a collection of illustrated antique books.

Also check out the many free audiobooks available at Librivox