Tipitap Apps just released their Color & Draw app for the iPad. Now, there is lots more room to work. Even I managed to color a page!
App Features:

- Enough TV based cartoons! 50 cute and smart, custom illustrations by our professional art department
- Fun, age-appropriate themes: animals, professions, sports, and natural settings
- Both white and black plain backgrounds for freestyle drawing and finger painting
- Save drawings to the in-app Art Gallery, your device photo album or share them via email with family and friends
- Import images from your device photo album to draw over
- 45 custom voice over instructions and invitations to draw and color
- Real finger painting. Not the classic "the-machine-fills-it-for-you" app engine! Kids develop and improve their fine motor skills and creativity.
- Limited curated color palette. Enough colors choices for a full spectrum of artistic expression yet restricted so kids are not overwhelmed by too many options.
- Eraser and undo options
- Settings for 'covering' the original drawing with your strokes or to keep it there for those who prefer it
- Intuitive interface for our youngest artists
See my original review for more info.