I think the phonics quote from Ruf is correct, at least in our house. My DS was a purely phonetic reader for about 7 months from about 4 to almost 5. He learned his phonics a-la Leap Frog at about 2 1/2. He didn't begin putting it together for words for another year and a half after that. Reading phonetically, it was almost as if he was "stuck" in little phonics books. He would sound out everything he encountered- even words he had seen hundreds of times.
When he finally got the idea of sight words, he jumped three grade levels in reading in about two weeks. He literally went from BOB-like books to chapter books.
I think phonics has still been immensely helpful because he can figure out nearly all words he comes across even if he's never seen them before and they're completely out of context. I assume that once they get around to it, it'll help him with spelling in school too.
