Please forgive me for not taking the time to describe all of these. I hope they are still free if you're reading this and you'll try them out on your own. AND I will add more as I reload my class iPads... these are the ones on my personal iPads for my sweet daughter to play with.
So, the best free reading and writing literacy apps are, in my opinion, as of today:
Pocket Phonics Lite- you'll want the paid version after trying this! It's not super fancy, but the format is great.
Anything by Preschool University... the ABC Magic series. I dislike how all the apps' icons look the same, but the apps themselves are great. Always check out the developer website button in the top right of the app store in the iPad... you can find more great apps that way.
Sketchio is a great app to use as digital paper/whiteboard. I love that you can move back and forth between pages and it's real basic... not so many features as Doodlebuddy, but that's a good thing at carpet or center time. others to get (I like letting my students choose from a variety of digital writing apps, just as I do various "real" tools) Kidslate and Penboard
Skill builder spelling. two fun games with word lists you customize.
PB Phonics 1-3 is free with 18 phonemes and 3 levels. Interesting format. Has additional phonemes for purchase.
Grasshopper Apps has a lot of word work and alphabet recognition apps. Some are free, some are not. I like them because they are customizable. I am going to add a couple of links here, but be sure to go to the developer page too to find any others you might like. Sight Words ABC Alphabet I like book
StoryKit Read or create books. My favorite free app for creating stories with drawings, pictures, text, audio.