Sonic Boom
Probably the best record shop in the city, and a good place to sell your old CDs. Also offers a reasonable collection of vinyl and concert posters.
Book City
Has a large and fairly tasteful selection of mostly new fiction and non-fiction. They also carry a good number of international newspapers and local independent magazines. Other locations throughout the city, but this is the main branch.
BMV Books
Carries a formidable selection of new and second-hand books on two storeys in subjects ranging from literature and spirituality to self-help and travel books. Their DVD selection caters to an impossibly wide range of taste, and is a real steal at around $5 each. Also has bargain-priced, slightly out-of-date travel books though they don't yet stock the excellent Wikitravel brand.
The Green Beanery
A fair-trade, non-profit organization that offers a mind-boggling selection of coffees and teas. They're currently preparing to move into a massive new location just down the street at Bathurst and Bloor, which is set to become Canada's largest coffee shop.
True to its bohemian character, The Annex is dotted with small bookshops and independent record stores centred around Bloor and Bathurst. You'll find the predictable headshops and ethnic/tribal stores, but there are also some truly exceptional places to shop.
Asiallery Studio
Carries hand-made, unique and exquisite fashion accessories at excellent prices.