For others who are looking too, I'm also having a lot of luck with finding picture books that have longer more involved story lines, some as long as a chapter in a chapter book. Picture books have really blossomed in the last couple of decades!

I don't try to be too selective at the library, I just get stacks and stacks and then preview them before I read them to her.

Bill Peet does some really great, long picture books with high-level vocabulary.

Wind in the Willows, Authors: Jan Brett, Grahme Base(sp?), Brian Jacques have wonderful picture books with lenghty text.

Chapter books I reccomend Frog and toad, Nate the Great, and The Magic Rainbow Fairies.

Look for web sites on these too. Let me know if you have trouble finding anything and I will be more specific.

I was just coming here to suggest longer picture books.

Many Moons

Many Moons, by James Thurber, has become DD's favorite book. She requests it almost every night. We call it many words. It is practically a 50 page novel. I timed my husband reading it the other night. It took 32 minutes, and my husband was reading fast. But, each page has a beautiful water color print.

I am also excited because DD loves the Frog and Toad books and Owl at Home. These were the only books by Arnold Lobel I could find at B&N. But, I just found a ton more on Amazon. Now, these books are long, but they don't have nearly the complexity or vocabulary that Many Moons does. DD just loves the feeling of these books. I find them boring, but I get it. They are sweet.


I really loves these picture books for their complexity and good vocab:

Zen shorts
Shrek
Ferdinand
Anatole
Amos and Boris
Sylvester and the magic pebble
James Herriot's Treasury of Inspirational Stories for Children

Fun topic! My DS enjoyed listening to the old classic fairy tales and myths at that age (but if your DD is sensitive, maybe the more modern versions would be better). I second the Ramona series, especially the first couple where she was young. Also the other Beverly Cleary books - Henry and Mouse and the Motorcycle (actually I didn't like the Mouse books, but many kids do).

We loved Frog and Toad too, and DS started getting into Magic Treehouse in his late 3's. One caveat with those - read a couple first to be sure that you want to read them over and over to your kiddo. I got so sick of them. I told DS we would only get new ones if he read them on his own. I'm mean that way.

I 3rd the frog and toad, and add Beatrix Potter - the orignsl complete works, we had a big book of all of them and at 2.5 it was DS's favorite!!

DeHe

A couple ideas that I haven't seen on here yet:

the Paddington books,

Magic School Bus - the original ones with the dense pictures (personally, I found these a pain to read...you may want to wait, but I know the kids liked them at that age and later),

Freddy the Pig books might be good (though, I haven't read a lot of them - they were a DH favorite at some point in time),

Doctor Doolittle books,

books of poetry - AA Milne's poem books are a good place to start,

Little Bear books (Minarik) (easy readers, but loved & lovely)

Oh, didn't read these to either kid at that age, and might be better for older, but keep an eye out for the Quigley series by Simon Mason.

We have an old series of books that are compilations of different types of stories (folk & fairy tales, nature tales, myths, etc). Those have been good to read and go back to over and again. Don't forget the 398.2 section in the library - lots of good folk and fairy tale books are shelved there (assuming Dewey Decimal system).

We loved the Frog and Toad books, and Owl at Home too. Obviously, talking animals are popular around here.

ETA: Oh yes, I agree, don't forget Beatrix Potter! (speaking of talking animals!)

Ditto Frog and Toad, Magic School bus, Paddington, Little Bear; Beatrix Potter

Madeline - was a big favorite of my son at 2.5 years old.

Curious George

Mr Men/Little Miss series

Henry and Mudge series

Fly Guy series, a bit aimed at reluctant readers and boys though, but they are funny and captivating.

Anything by Richard Scarry

Barbar

Anything by Maurice Sendak or Tomie DePaola

I daughter use to really laugh with Junie B Jones and Amelia Bedilia(sp?)


Oh yeah, Mr. & Mrs Green, they had humor too

I just can't seem to stop- one more thought, it's also fun to listen to these on CD, Frog and Toad is especially good on CD
Have fun.