Storyjumper is another site along the same lines as Bookr (which I mentioned in an earlier post) but this new offering has a few extra features that make it a little more user-friendly for classroom projects. Once a student has created an account (must be at least 13 years old), s/he can upload pics and drawings of their own, in addition to searching within a bank of Flickr photos. The user can add what are called "props", as well as background images and text. For the teacher, Storyjumper would be a great way to create books on seasonal or topical themes and then view them in class on a Smartboard or digital projector. (Here's one I made as a demo.) Unfortunately, there is no embed code. If you think your book is particularly inspired, a nice extra is to have it professionally printed (for a price), or even print it out on your own colour printer. Take some time to look through the books in the gallery. Some will be perfect as is, and some will even let you "remix" the content for your class.
(See the comment from Blake for more information on how to use Storyjumper with your class.)