I had been hunting around for a software that is either free or cheap (under $20); unluckily, I could not find one good enough for the task. But then I just saw that Picasa have an option to reduce Red Eye from Digital Photographs besides the other kick-ass options from a free Photograph Album Collection/Maintenance software. And let me tell you, the Red Eye Reduction tool of Picasa is way too cool and works great.

From Picasa's website:

* Find all your photos - and make photo albums, quickly and easily.
* Edit with ease - Crop, reduce red-eye, and enhance with one quick click.
* Print at home - No mistakes. No waiting. No hassles. Just beauty.
* Share photos online - via email or Picasa's Hello technology.
* Make slide shows - set to your own MP3 music files and much more ...

Download Picasa and others from the Google downloads.
You may want to look at Hello too!