My DD8 has an (unactivated) LG Optimus V (Virgin Mobile prepaid smartphone). It hooks up to the wifi at home and at Grandma's. She's got a Kindle app with a slew of books, a bunch of free / cheap games, e-mail, Skype, music, Audible e-books. It does everything but text and make phone calls - which we could add for $35 a month with no contract, which includes unlimited 3G wireless.
Even without a case, it's survived multiple drops onto hard surfaces (most of which were caused by someone other than DD) with no worse issue than having to re-insert the SD card. It's got a 2GB SD card that can be easily upgraded for more capacity (unlike an iPod or Kindle Fire). It doesn't do text-to-speech (nor does the Fire, or the Kindle Touch).
They normally go for about $120 on Amazon; I got hers for $50 at Target on Black Friday.
