Oh my gosh favourite children's books well having worked in childcare for some time now I have to many, but I must say I love the ones where you can really add something to the story by using voices etc, A lot have been mentioned some of my fav's are:
The Gruffallo
Edward the emu and Edwina the Emu
Possum Magic
The very hungry caterpillar
Tiger in a pink hat
Wombat stew
Room on the broom
Brown bear
Rumble in the Jungle.

Just to name a few, but there are so many wonderful books out there for children these days.