Here's a cool site with phonics activities and online books for young learners.  It's geared for children between the ages of 4 and 8 who are just learning to read.  A simple free registration is all it takes to access dozens of activities and guided reading books.
From the website:  The program takes the early learner on an interactive journey of exploration and learning. Starting with initial nursery rhymes, it moves through pre-reading activities, alphabet awareness, letter sounds, short vowels, CVC word blending, initial blends, long vowels and all the phonic activities critical for developing early reading skills. Scientifcially researched and teacher approved, The Road to Reading is the most comprehensive reading program available online.
The activities are fun and young children will enjoy playing with then without even knowing they are learning valuable pre-reading and reading skills.