Concerning books on writing, my personal favorite is Writing Picture Books by Ann Whitford Paul. She gets into the nitty-gritty on everything from addressing a dual-audience to character development to rhyming and rhythm. Excellent read. Bring a highlighter. Keep it handy when you write, edit or critique.
My other favorites, which are more geared toward chapter book and adult writing, but that still have something to teach us, are How to Write Science Fiction & Fantasy by Orson Scott Card and You Can Write a Novel by James V. Smith, Jr. (cheesy name, but a great book). Again, I like these because they really get into the mechanics of writing: the nitty-gritty of how to do specific things and why such-and-such works and such-and-such doesn't.
What books do you recommend?