I think that you should try to work within the school's philosophy at this point, since, in general, you are quite happy with the school. What I would suggest doing is meeting with the teacher to see if you can just work on moving up the level of picture books (and encourage her to read chapter books on her own at home).

Here are a couple of links to teacher discussions of good 4th and 5th grade level picture books:
http://www.proteacher.net/discussions/showthread.php?t=395988
http://answers.yahoo.com/question/index?qid=20080707111723AASegpF

Perhaps you can see if the librarian or teacher can look for some of these books to see if they are already in the school or classroom library, or you can see if your local library has some of these that she can bring in with the teacher's approval. I do think you would need teacher buy-in, though, because you would be looking to have the teacher have higher level discussions with your daughter. I actually think an in-depth analysis of each book would be a great way to help your daughter start analyzing text in a way that will eventually (in several years) be important when she has to start writing papers on books she has read.

She thought she could, so she did.