Irene,
Your DD sounds a bit like my DS when he was 4 or 5. In his case I would say he is a "watcher". Even with video games, he would prefer to watch someone else play up until the point when he feels confident that he can do it all and do it well (in fact, her reason sounds very familiar
). I wouldn't worry about your DD's reluctance to work on reading. We just kept pointing things out casually and reading aloud as much as he wanted (he has always loved, and still loves, being read to). As I said in an earlier post, he was not a child who learned through sound/symbol connection. He was more interested in picture/story. However, once he became interested, he leapt all at once in K to a 3rd grade level; then all at once to a fifth grade level in a nine week span during early first grade.
If you are snuggling with your DD while you are reading, then she is seeing the text and it will help lay groundwork for her. If you are concerned, you might consider focusing on choosing good picture books for awhile. If you choose well, the stories are just as well written and complex, but the shorter structure lends to re-reading and/or to your DD picking a familiar book up on her own. Many kids develop reading fluency with books that are at least partly familiar to them.
In the meantime, you can relax and savor the joys of curling and up and reading to your little darling. Although we have two fluent readers who still love being read to every night, I know some fluent readers who have lost interest in being read to by their parents.
