Interesting question, JenSMP. I always thought every kid went through this since I've seen it with both my DC, and DS7 is a pretty advanced reader (mostly reads books around 5th grade level, although he's tested higher).
My belief has been that the brain needs time to train itself how to quickly translate the letters into words/words into sentences, etc... and that it's more difficult with small print to make the distinction of one letter from another, so that makes it harder for the brain to do the quick translation. I guess I look at it in a similar light to learning a foreign language -- you need people to speak to you slowly and to enunciate clearly otherwise it sounds like gobbledy-gook, because you're actually translating in your head. Eventually, though, with practice it becomes second nature and you no longer have to focus so much on each word.
Anyway, that's my own personal theory based on absolutely no research. If it helps, DS7 no longer has issue with this, and DS5 does.
Best of luck!
