One thing my daughter loves to do (like most other kids) is spend time on the computer. One of our favorite websites is Starfall.com. It is a free educational sight that not only teaches reading but the kids really seem to enjoy it. It is geared towards preschool to 2nd grade and is a great tool for learning early reading skills. It helps to teach phonics but can also enhance sight vocabulary as well.
The ABC's section is for early reading and it lets you explore your letters and their phonetic sounds. There are great songs for each of the short vowel sounds and for each consonant there is a short activity which explores the letters sound and teaches you some words that start with each letter.
Once children know their letters (and even before that) there are stories that you can read. If you click on each word it not only says the word for you, but it sounds it out phonetically, teaching you to do the same.
There are lots of other fun activities too. I think it is one of the best early educational sights out there. It can benefit any child, including those with special needs. Everyone I know that tries it says their child absolutely loves it and learns a great deal from it. I really think it benefited my daughter greatly for it went right along with what she was learning at home. My daughter has not only learned to read, she has learned to love to read.