My daughter loved a video from leapfrog that taught her the alphabet. She learned all the letter and their sounds very easily from that. I didn't like the number one though--it was useless. I also have several fun games on my phone that she plays with and can trace numbers or do phonics.
My little one has used mostly play in nursery, but in this last term of nursery, she's starting reading skills. She has a series of books she's working with that start with pictures and characters and gradually add language (Oxford Reading Tree). They also have a series of books the school has had us use called "Finger Phonics" () which traces the letters and goes over sounds.
My daughter has known her letters for a while (although she's struggled with the lower case), but after working in these for a week or so, she has started recognizing a couple names in print (without the pictures) from the first picture books--she can do Mum, Dad, and, Kipper, Chip, Floppy, and Biff so far. It's fun watching her learn, so there is reading being taught, even in preschool.