Miraca Gross, in her book Exceptionally Gifted Children, defined "reading" as something like being able to read at least 5 different words without any contextual or visual clues - and she claimed that was more stringent than the definitions used by some authors in the past! By this definition, I'm pretty sure it was learning to speak well enough to say the words that was the limiting factor for my DS, not the learning to decode the print :-) For myself, I decided he could read the day I first saw him read a book he'd never seen before from beginning to end, and noted another important milestone when I realised there was nothing he would consider too hard for him to read if he really wanted to know what it said. Of course, both of these are very fuzzy (in the first case, on the day he first had access to an easy reading book he'd never seen before - who knows how long before that day he'd have been able to read it? - and in the second case, entirely on my judgement).
The phonetics/whole word thing is very interesting. There's a lot of cognitive science/neuroscience work on how reading is done, using for example gaze-tracking equipment and clever experiments involving having people read from a computer screen and modifying the letters that are actually there in a way that depends on what their gaze is doing, plus a lot of brain-based investigation of what is done with the visual information received. It turns out that how adults really read is nothing like what it feels like: we may individually say that we read by whole words or by phonics, but we're fooling ourselves, it's far more complex than either. (Same is true for interpreting what we see more generally, come to that.) You can do an amazing amount of swapping letters around while people are reading a passage without people even noticing! I don't know how differences between languages factor into this, or what the process of moving from beginning reading to a mature mechanism of reading is, but from what little I know I'd wager that the mechanics of adult reading doesn't depend hugely on how phonetically regular the language is. It's something I'd love to learn more about some day.
And another vote for "not pay attention" here, until your DD is obviously frustrated or actively requesting help - which may happen next month, in several years, or never. Just reading to her will provide her with all the input she needs at this stage, IMHO.
