Yes, there are three books in the Indian In the Cupboard series. I loved them all.
Louis Sachar's books, especially the Wayside ones, are hilariously funny and a good read.
For more of the surreal, Madeleine L'Engle is good, especially if you're reading to her. They might be a bit tough for a five-year-old, but still enjoyable.
And the Narnia books are excellent, of course.
The Ramona the Pest books are good--Beverly Cleary is their author (she's also a notable native Oregonian). If your daughter doesn't get into them now, Cleary also has some excellent works for young adults, as does L'Engle (topics range from high school romance to divorced parents). As an adult, Cleary's autobiography is also worth a read.
Judy Blume's books such as Fudge and Superfudge are good reads for younger kids. Blubber is also an entertaining book with a good lesson. Some of her other books deal with more grown-up topics that are more appropriate for older children.
The Hobbit is also a good book and perfect for a smaller child. Don't dismiss it out of hand for a girl--where I come from, girls don't read those books, they read Anne of Green Gables, and so I missed out on years of Tolkien enjoyment because of it (however, I do love Anne of Green Gables too).
I'm glad to hear you're reading to your daughter. It makes all the difference. Being read to by my parents made me a voracious reader (and a spelling bee champion) in turn. It's a good start, and maybe she'll end up like me, reading at the college level by 5th grade
EDIT: I should also add that cultivating a relationship with your local public library is a very good thing to do. Most larger libraries have a librarian who specifically deals with the children's books and who can give you good recommendations as what to read next. Also take an opportunity to talk to your child's public school librarian. He or she will be glad to know that a student's parent is interested in reading with their child, and will also have good recommendations for you. Furthermore, encourage your child to talk to the librarian. I have fond memories of many of my librarians.