This year I decided to do a little research and see what was out there as the next big toy. I found the iXL. I thought that my 3.5 year old would love it given that he loves Daddy's iPad (and can operate it without help).
The iXL is by Fisher Price and is recommended for ages 3-7; however, it is easy enough for my 2.5 year old. What it is is a compact computer with a screen, speaker, and an attached pen. The iXL comes preloaded with one theme pack (monkeys) and you can purchase other themes for around $24.99. Each theme bundle included a read along story (which I love how it highlights the words as it reads), 2-3 games (educational and non-educational), a drawing pad (you can even upload your own images to draw on), and a writing pad (you can trace letters, write words, etc).
The best thing about the iXL is that it is little kid tough! My kids have dropped it multiple times, left them open for the baby to drool on, you name it! I also worried that it would chew through batteries; however, the 4 AA batteries seemed to last through a lot of uses.
I purchased mine for $69.99 on sale before Christmas, but the average retail price seems to be $89.99.
I highly recommend this item to anyone with a young child. As a reading specialist, I love the features it has for reading books, the writing pad, plus the fact that my kids played with it for over an hour on the first use!