I had a Cross-Canada Bike Book made by Viovio.com which turned out excellent on the first pass. I would have a look at what they offer for laying it out. Here is a Viovio review:
Here is a link to my Viovio book pages:
I have just created the pages as PDFs and uploaded the "photos". Viovio has a good looking photo-sharing section as well. Just click on the first photo then step through them using the thumbnails in the upper right.
I used inDesign and made pdf images for each page. I had background, photos and text along with a special cover image. You could do that with Photoshop as well. You may look at Adobe Elements for the layout too. Then you would have a very good photo-editing program as well.
For other alternatives, I have seen great results from Apple if you have iPhoto and I have heard some great things about Mpix.
Also check out this article:
Along with in-depth reviews of the popular sites, he mentions "FotoFusion" software that looks very interesting for doing the layout (and there is a 20% off coupon number there.)
One thing to be aware of is that some of the page images may be cropped off at the edges. Check with the printer to see how much space to allow for this. It can be substantial.
Good luck with your project ............. Dave