I got a couple of Kobo Voxs for my girls (aged 7). They are for Christmas, so they haven't got them yet. I've been playing with *ahem* setting them up for them. They are Android tablets, so any Android reader app can be used. They do NOT have access to Google's offical Android Market, though other markets can be used. I plan to keep them off the web (not giving them the WiFi password and/or installing an app protector). So far, they seem like nice little tablets.
Others you may want to consider are:
Ipod/Ipad - refurbished ones are fairly cheap
Acer Iconia A100 (7") or A500 (10")
Samsung Galaxy Tab and Players
Toshiba Thrive 10" (7" is comming soon"
The Android tablets and Ipods are more robust than the e-ink readers. They are colour. They are not locked into any bookstore (don't know how handy you are at converting), and you can install educational apps.