Many libraries offer ebooks to lend in kindle format. Almost all of the Magic Tree House Series are available.
Free ebooks are iffy in terms of quality as the are often self published in order to get a following for the author. That being said, some of them are gems! Subscribe to http://ereadernewstoday.com/ aand they will send you daily posts with lists of books for all ages. Also, pixelofink.com. These two sites will give you links, http://kindlebooksforkids.com/ http://www.squidoo.com/kindle-and-nook-books-for-kids. And finally, most classics, like Robin Hood, The Three Musketeers, The Red Badge of Courage, Huck Finn are out of copyright and are free from Amazon. Try Moby Dick. After they are finished giggling about the title they'll love the story.
PS Children's librarian here...please don't stop them from reading picture books. The richness of language that they learn from them is priceless. Most are written at a high third and up reading level, with figurative language and poetic phrasing that will teach them more about the world than most "leveled" chapter books will if they were to read 10 a day. Picture books are like the icing on the cake. Cake is good but without the icing it's just fancy bread!