My nine-year-old saved up her own money and bought a Coby mp3 player for $25. I'm really impressed with it -- color screen, the software is easy to use, and the sound quality is great.
emusic.com has ebooks as well as music, and you can sign up for a free trial (it's based on membership rather htan individual purchases, you buy items with your monthly credits). they have a LOT of titles, including tons of children's classics -- I don't know how good the readers are, though. Her Coby player came with 35 points for free eMusic downloads and a free audiobook, but she hasn't used them yet.