Leveled Readers
Leveled readers are reading texts that have been rated as to their difficulty. U.S. teachers of literacy use leveled readers to guide literacy learners through ascending levels of difficulty in the texts they attempt to read on their own. It has been found (citation) that this improves motivation.
There are several systems for scoring reading texts. A correlation table relating several such systems can be found here http://www.readinga-z.com/guided/correlation.html. A paper describing the history of scoring reading material and assessing two such systems is found here: http://www.ciera.org/library/reports/inquiry-1/1-010/1-010.pdf.
Providing leveled text on or accessible to the XO would aid the teaching of English literacy. The form of these texts might be short books or perhaps comic strips.
Evaluating the level of a text entails recognizing various classes of words:
1. Sight words -- These are common words that teachers often ask children to memorize. For common lists see [1] and [2]
2. Simple words (consonant, vowel, consonant) with no inflections or perhaps made plural.
3. One syllable words with consonant combinations (th, sh, etc.)
4. Contractions
5. Multi-syllable words which are simple words lengthened by common prefixes and suffixes
6. Words with uncommon letter sequences (-irt, -urt, -eigh, for example.)
7. Special words such as proper nouns or onomatopoeic words.
Level ranking also depends on stylistic clues such as repetition and rhyming. It depends on context: are there pictures giving clues to the text? Is the font large, with short sentences fitting entirely on the page?
On the OLPC XO several activities might take the place of the lowest leveled readers. In particular, gCompris reading activities which allow the child to pick words to label images, or to fill in letters spelling the name of images seem to be roughly equivalent to "caption books".