Draft is a very cool site that I juts found out about from Larry Ferlazzo's blog. This site is similar to Google Doc's in that it lets a user create a document and then share it w/ others to collaborate on. What makes Draft nice is the ability to see the changes highlighted and then deny/accept them before adding them to the document. Also, a person has the ability to "ask a pro" to get professional writing help on a document for a fee.
Boom Writer is one of my favorite Web 2.0 site and is a very innovative way to integrate technology into a curriculum. This is done by having a class grades 3-8 create a digital story through an online competition in a safe environment. Students create chapters and then vote on which chapters should be included in the finished product. Once a book is completed it can then be published and a copy can be ordered. Right now BW offers a free class copy for new teachers that sign up. 
CubertsCube is a excellent site for creative writing for kids aged 7-12 yrs old. This is all done online in a user friendly environment where kids can write/draw a rough draft, get feedback, revise, and then publish and share a finished product.
Foboko is a new (beta) for creating digital books. These books can also be collaborated on w/ others and then published online. It kind of reminds me of BoomWriter w/out the ability to vote on finished chapters.