My three-year-old is on the other end of the phonics-sight word spectrum. She also knew her letters and letter sounds before turning two, but she did not sound out a word until she turned 2.5. At that time she was sounding out more words than she was committing to her sight word memory. Actually, she had like zero sight words before learning how to sound out words regularly. Even now I am surprised by how many words she still has to sound out. And, I can echo that it is tiring for her. A whole book, even one of those easy books is a marathon for her.
I have noticed that my DD does not yet have much desire to read. She wanted to know how. She cracked the code, but actual reading is not enjoyable to her yet. It is work. I have to remind myself she is only three. So, we do not push her at all, and we hope that a lot of it will come with age and maturity, (maybe even just eye maturity). I do not want to make her resent reading. But, I do want to give her the opportunity and teach her about working hard without her feeling like a failure. It is a balance. I know it is hard.
FWIW, we read tons. I think we are averaging about 2-3 hours a day. Lately, I have been making a conscious effort to split the time between reading complex chapter books, beautiful picture books, non-fiction, and allowing her to read simple books. She probably only reads 10-20 sentences a day. But, she still loves books. We also visit the bookstore almost every other day. Oh, and we spell and play word games all the time. She is a very aural girl.