Take HIV, for example. Did you know that some people are born genetically immune? They lack a chemical receptor that the virus requires. If babies were modified to not have this receptor they would be effectively immunized. Many other diseases can also be prevented in a similar way. There are even genetic diseases that are so bad that you life will be over by age 30, but this can be corrected with gene therapy. I argue that not only is this ethical, but it would be unethical to knowingly prevent a child from being born protected.
If you stop there I can think of no way that this would be unethical, but once you start then you risk running into problems.
It's natural for a parent to want what's best for their child, so why not give them the genes for larger lungs, or better muscle structure. When dealing with internal organs like that - taking genes from other people who have clear advantages - I also argue that it is ethical. After all, it doesn't change who they are.
I have heard counts to that though. Some people think it would cause a genetic arms race, but rationally speaking people are already born with these traits so it's not like it's creating an unfair environment. It's just giving the best that can be given to the child.
However, once the parent starts messing with how the child looks, how tall it is, etc. that's when we run into ethical issues. Other functional alterations that can cause problems would be, say, infrared vision. If you gave that to a child it could ruin their ability to have a normal life. Introducing other traits from animals, such as biological immortality - the ability to regenerate from any injury and never grow old - could be ethical when dealing with the child itself, though could be unethical when considering the over population issue.
I would also argue that making changes that impact the child's ability to reproduce normally would be a huge ethical problem. For example, the lungs of a bird might be more efficient, but such a difference would probably be great enough to prevent fertility with humans. This could also pose some problems for the mother carrying the child.
Overall though I really hope needless restrictions are not placed on the potential here.
P.S. - I am studying to be a genetic engineer to work on this very issue.