When we were driving in town a couple of days ago, E asked, "What does that blue sign with the "H" on it mean?" I explained that it meant a hospital was that direction. Then, he rode the city bus around town with his preschool class last week, and this week he was so excited to point out every single bus stop sign he saw every time we drove anywhere. So we created an activity where we drove around town pointing out all of the signs we drove by (no parking, right turn only, street names, etc.) and named them all. He was very excited to be reading and understanding what all of the signs meant.
The next thing I noticed was by pure luck, thanks to two magazine subscriptions my oldest's grandma just sent him as gifts. E received in the mail this week the Nick Jr. magazine and a Legos magazine. He pored over these magazines. We read them together. We cut out and did the activities. I remember loving the Highlights magazine when I was young. So here I think the goal is to find something your kids are interested in and cater to that interest. E also loved cutting up the magazine with scissors. Great small motor skill practice (and, of course, I made sure he understood that we don't cut up books like we did these magazines!).
The last thing was a gift from a friend. It is a book called "Learn to Read Treasure Hunts." The book has 50 treasure hunts that you can do around your house. The first clue reads something like, "What do we use to sweep the floor?" Then they go find the broom and there is another clue to find the next clue, and the last clue says something like, "Way to go! Come and get your sticker." And the book includes 50 stickers for the end of the treasure hunt. E loves this, and asks to do at least one treasure hunt every day. I highly suggest this for any child who is beginning to read.
As for storytelling, I just ask my kids about whatever they are playing with. For example, my youngest loves Thomas the Tank Engine. Emily is currently his favorite train. So I ask him where Emily is going when she is driving on the track, and I help him create a story based on that. My oldest -- well, my oldest loves to talk, so if you just ask him to make up a story about a superhero he will talk your ear off. But again, I just elaborate on things that they are currently obsessed with (garbage trucks, trains, superheros, etc.)
I hope this helps. Now go, and have fun!