There are some Free interactive resources/games for learning to read/spell:

http://www.readwritethink.org/search/?grade=7&resource_type=72
- construct- a- word and other tools might work. There's a lot of stuff on this site for learning to read or write. Kids can create their own picture dictionary, which I think you can save or print. This is a site worth remembering!

http://www.e-learningforkids.org/index.html - has some interactive tools on word recognition and putting words together and reading/spelling.

http://www.abcya.com/kindergarten_computers.htm - has some spelling practice and storybook narration.

PBS Kids (http://pbskids.org/) - has some guided reading/spelling - especially with SuperWhy, WordWorld, and Between the Lions. My son was a fan of SuperWhy and WordWorld.

This site has free guided reading like Starfall, but you need to register first - http://www.literactive.com/Home/index.asp

This is a phonics chart in color and with audio - http://www.foniks.org/ - it's aimed at older ESL learners but I have used it with my son.

There's a new phonics, guided reading, video based program with the non-profit KnowWatchLearn - http://www.readingbear.org/