This is an interesting take on eBooks for pre-school children. Though not free, the app includes audio books, games, and the ability to send a custom report on the students' progress.
This app goes with the FREE service provided by littlebirdtales.com. Students can create stories with their own artwork and audio recordings either from an app or on the web. The completed tales can be downloaded as either a PDF or mp4 with audio.
This is a great article about the evolution of reading. Given the influx of iPads and eReaders into classrooms, the concept of "books" is certainly changing.
This app is free until April, though know that some content becomes an in-app purchase. Bookabi allows students to create their own storybooks with 2D and 3D characters. They can upload their own photos and pictures plus save and share their final projects.