Foam Bathtime Letters are the best toy ever invented. You can take an "O" and stick a "T" into it to build a little raft. In fact, you can make all kinds of rafts you want. And if you make enough rafts, your child will start asking for the "boat parts" by name. "Mom, where is that "L" it makes the perfect anchor."
I think it is much better to learn about letters when kids don't even know they are learning - it beats flashcards!
Painting: Ulysses deriding Polyphemus - Homer's Odyssey by William Turner