These are some books DD started liking around 2 and at nearly 3-1/2 she still enjoys. She's been really into the "story" aspect of books since she was pretty little, but these are all way beyond DS who just turned 2, so I guess it depends on the kid. He likes to interact with the pictures, not listen to the story, but these all have great illustrations. I can't stand picture books where the art is not done with some obvious love and care.
The Cow Who Wouldn't Come Down (Paul Johnson)
Anything by Elisa Kleven. Some favorites of hers:
A Carousel Tale, The Apple Doll, Hooray a Pinata, The Puddle Pail
Alfie and Annie Rose books, there are many (Shirley Hughes)
Subway Mouse, The Party (Barbara Reid)
Anything by Jane Hissey, with the exception of one collection of
stories that has fewer pictures, sorry I can't remember the name.
But Hoot, Ruff, Old Bear, Little Bear Lost, Little Bear's Trousers are all
great.
Katie Morag books (Hedderwick)
Anything by Emma Chichester Clark, except Visit to Aunt Augusta
DS is right now able to go through these books if we're not reading them to DD and can focus more on the action in the pictures than the full story in the words. He's really like Richard Scarry's Word Book, and he LOVED this book translated from German called something like In the Town All Year Round. Wish I had the exact title, found it randomly in the library. DS also likes Virginia Burton (Katie and the Big Snow, Mike Mulligan), and DD is enjoying one of her books I never see anymore, Calico.
My parents read to us a lot and many of our current favorites like those by McCloskey, Minarek, Burton and a few others were books I loved when I was little and I remembered them, sought them out. But we've ended up buying a few of some of the above authors, most of whom we discovered randomly in the library. We love the library, do you live near one?