Well, my wife remediates kids with dyslexia and it involves quite a bit of phonics work. Therefore, I'd recommend
http://www.readingbear.org as it's free, phonics based, and can be used by "older" kids your son's age. The concept is based on
Why Johnny Can't Read by Rudolf Flesch. The site founder taught his oldest kid using a similar but less technological method, and used the site itself to teach his youngest. He's also known to post around here from time to time so it's easy to recommend this one to you!