I can't believe I haven't shared this yet. Starfall is a great website that YOU MUST try if you're trying to teach a little kid to read. I used this with my son and he's reading (at 4 yrs old) This website is FABULOUS and it's free. There's phonics, there's 3 letter word books (if they get stuck they can click on the word and it's read to him) and tons of games and activities.
The second is this awesome book full of ideas.