Hmm. This may be heretical, but we have never really concerned ourselves with reading "levels." We take the child to the children's section of the library and wander around with him, letting him pick out books but also pick out some for the sack that we think he might enjoy, with an eye to variety. Lather, rinse, repeat the next weekend.

This has worked very well. Both boys are reading several years past grade level and more importantly, they are good at picking out books themselves.