Hi Jodi! You seem to have gotten many great suggestions. I apologize if I repeat any since, I admit it, I just skimmed the other answers!
I know that you said you are having him read the book first, them you read it with him. Try it the other way around. That way he will be somewhat familiar with the book. Also, let him know it is o.k. to skip a word he doesn't know and go back to it. There are many words in English that do not "sound out" and kids get very caught up in this! Instead, have his skip it, then see what could make sense in that space. He should use some of the letters to see if the word he guessed makes sense. Usually the first few letters of a word are all the child will need at that point.
Instead of going to Borders, I would recommend the library. Some have the books color coded by different reading levels. This way, too, there are lots to choose from, but you aren't out a ton of money if he doesn't like them. Let him choose some to read to you, but also some for you to read to him! If he has an interest in a certain subject, there may also be non-fiction books at a lower level for him (bugs, dinosaurs, the jungle, etc.).
With my son we often do "I read a page, you read a page" too. What we see as a short book can seem like War and Peace to a young child. Try to find magazines for kids, too. The shorter articles can be less intimidating. I know of Highlights for Kids, but I am sure there are others out there as well.
When you have him do his reading on his own, are you reading as well? This can help if it is a "family activity" instead of him feeling like he is missing out on all the fun (since he clearly isn't viewing reading as fun :) ) If you are sitting next to him on the couch or on a blanket under a tree you are still there to help as well as modeling good reading for him.
Ask some family members to write letters to him. It is ALWAYS fun to get mail! I also leave my son notes in the morning when I leave for work before he is up. He can help you write grocery lists (use the ad for help spelling), or you can have his check to see if something is on sale. Let him write letters to family members,too.
I know I have written a long post here, but I hope that some of it is helpful! Please feel free to contact me if I can help in any other way! Good luck!