I wouldn't be overly worried at 5 unless the diagnosis is confirmed and verified by a second opinion. If it does come back as dyslexia You have a jump start on working to help you child.
FWIW, I discovered that my DD was pretending to read books using the context based memory you mentioned when she was 6. She had previously been reading books to me and I wondered why she suddenly made mistakes with an entirely novel one - the answer became apparent. I would not jump to diagnostic conclusions too hastily.
I spent some time with my DD right then and there - she already knew the 'letter sounds' so we worked on the word sounds and persisted through the tears (I hatedmyself and felt like Dr Mengele at the time but I 'just knew' I had to do it) and a couple of hours later DD could read. Just six months later she had torn through the Hobbit and was well into the HP's. Only mentioning this because my DD showed the similar behavior...
