The way I look at it (the way I did look at it when my DS was that age, and the way I still look at it with hindsight) is this. If she were going to school in a few months from now, then maybe, by not encouraging her (e.g., by not having time to listen to her read and help her with words she's stuck on) you might be able to stop her being able to read fluently before she starts school. And there might be some advantage to doing that: you might save her a little boredom that way. There'd also be disadvantage to it of course, and I don't know how it'd balance. However, you're not in that situation. She's 2 and reading sentences: whatever you do, short of locking in her a cupboard for the next three years with no written words, she's going to be reading fluently before she starts school. So whatever you do, she's going to need accommodations when she starts school, or she's going to be bored. Once you're in that state, there's nothing to be gained from not encouraging her (although the *dis*advantages of that course are still in place). On top of that, if a child is going to need accommodations, there's a lot to be said for the child *obviously* needing accommodations - it can be easier for a school to see that they have to do something for a child who's reading chapter books when they start school, than that they have to do something for a child who's reading picture books.
Of course, you still have to be careful that you don't go beyond encouraging in the sense of following her lead! It can be tricky, really, to know what's optimal. (In the context of another thread I found myself thinking that the conjugation is "I encourage, you push, he/she/it hothouses"!) What I felt comfortable with with my DS was (a) buying reading scheme books (because they are fully decodable, unlike picture books) which (b) were only ever read by DS (not read to him by anyone else) and (c) allowing reading and looking at books in bed at night.
