My kids love Hitchhiker's Guide! If you use audiobooks, check out the one for Hitchhikers -- it's read by Stephen Fry, who is perfect for the job.
Re milestones, I can give you our experience with ds as a data point. At 3.5 he asked me to read him Ramona the Pest -- not sure why (maybe he liked the cover art). I figured he'd lose interest pretty quickly, but we finished it in under a week, and from then on most of the books I read to him were chapter books: Charlotte's Web, Wizard of Oz, Narnia et al.
