Here are a couple of good online alternatives to Microsoft Photo Story for making digital story videos or slideshows. The benefits of these tools over Photo Story are they are very fast to generate and you can often download the final product, embed it on your blog or email it.
Animoto allow you to turn images into professional looking video slideshows. Videos can be automatical generated with music and you can narrate your video with text. You can download the final product or embed it in blogs, Facebook, You Tube etc. This is the link to get a free premium education account to use with your class.
Stupeflix is another web service that turns your pictures, videos, and text into professional looking videos. You can download your video to your computer as an MP4 or flash file.
PhotoPeach is a very simple way to make an online slideshow. You can use your own photos or those from the web (or from your Picasa or Facebook albums). You can write captions, zoom in on photos and add music. You can do a You Tube search to find suitable music for your slideshow. Slideshows can then be embedded on blogs or shared with friends.