I am no reading expert but will comment anyhow.
*If* the teacher follow through on the plan, your DD has no reading difficulties, and continues to read books that are appropriate for her age and ability levels--it sounds like a reasonable approach to me.
Kids who are talented/natural readers don't need formal instruction, IME. The only caveat is that she will miss out on the comprehension, discussion piece if she doesn't take part in a guided reading group. I wonder if there would be an opportunity to accelerate into a higher grade, next year? Or if there are some other children in the class that could be reading peers?
