Have you tried the Geronimo Stilton books? They are chapter books (about 3rd grade level), but they have large text, interesting fonts, and pictures on every page. They're the first chapter books my DS would read at that age. They just weren't as intimidating as a regular chapter book. He quickly transitioned to regular chapter books after this. You can take a look at a few pages of the book on Amazon to see the format.

http://www.amazon.com/Race-Across-A...=1265893931&sr=8-1#reader_0545021375