Storybird: cute web-based storybook publishing
Of course, kids can make their own Storybirds, but they can also read selections from the site's public collection. They're not all great, but the characters in the art gallery are cool enough to hold some interest (I know I would have loved the monsters, in particular, as a kid). Storybird is also looking at offering a print publishing platform, so you can use it to make real books, too. What kid wouldn't want a professionally printed version of his own book?