Earlier this year, The Library of Congress and the National Endowment for the Humanities debuted Chronicling America: Historic American Newspapers, a collection of 226,000 digitized newspaper pages dating between 1900 and 1910 from publications in California, Florida, Kentucky, New York, Utah, Virginia and Washington, DC. Institutions in those states received the first grants from the National Digital Newspaper Program, which eventually will post historical newspapers from all states.
You can search and browse the papers at: http://www.loc.gov/chroniclingamerica/
Results show the entire page with your search terms highlighted; to zoom, use the + button or click and drag the magnifying glass. Click More Options for This Page to download a high-resolution page image or view it in PDF or text format (though the latter gives you a baffling Optical Character Recognition software translation).
The site also offers a directory of newspaper titles. Search by place, time period, keyword and type (such as an ethnic publication or one preserved on microfilm). Results give you information about the paper and where it's available.
This is a valuable tool for the historical and genealogical researcher, especially in showing what historical newspapers are available on microfilm in the United States.