I just discovered this GREAT online reading site:http://www.literactive.com
Welcome to Literactive
Literactive is the leading provider of reading material for pre-school, kindergarten and grade 1 students available online. The program is comprised of carefully levelled guided readers, comprehensive phonic activities and a wealth of supplemental reading material which gradually develop a child's reading skills in a sequential and enjoyable manner. Developed and approved by teachers and parents across the United States, Literactive is the acknowledged leader in early learning online. All the material is available for free from this site but you need to register.
I just found it last night and previewed it. I haven't gotten a kid doing it yet, but the handwriting sheets will be useful for us offline. And the animations are well done.