My friend Emily Wilson is not only one of my favorite people in general but also my particular favorite classicist, and she's got a great piece up at Slate about the issues surrounding the possible historical basis for the Iliad and the Odyssey.
I've written here before about my desperate passion for the Iliad. I've actually been kind of obsessed with all this stuff ever since I first learned about the ancient Greeks in fourth grade (hmmm, but even before that I was obsessed with the D'Aulaires' Book of Greek Myths). I read a lot of books about Schliemann and the discovery of "Troy" that year, and also the novels of Mary Renault, and ever since then ancient Greece been one of my favorite things to think about--in fact if I was banned from all current professional passions and leisure entertainments (i.e. the eighteenth century, book-reviewing, novel-reading, running, yoga, etc.) I would throw myself into the study of ancient Greek and learn to read Homer and also (I realize this is a totally different thing) Plato and Thucydides in the original and then go and travel around to see the places Odysseus went on his travels. I think I am too lazy to learn ancient Greek at this point, but I do really really want to see those places, and the Parthenon and stuff. Imagine standing where Pericles delivered his funeral oration!
Books I liked when I was a Young Person: Robert Graves's tendentious historical novel Homer's Daughter; David Macauley's insufficiently well-known Motel of the Mysteries. Slightly impractical bonus link: Peter Green had an extremely good review essay on this stuff in a recent issue of the New York Review of Books (if you've got a university library affiliation you can possibly get it through your library homepage, but otherwise it is subscriber only, I'm afraid).