Did your school do any tests specifically designed to assess reading skills? Here is a site that mich recommended which lists tests that you may want to consider or possibly try to get the school to administer http://www.concordspedpac.org/Whichtest.htm

You mentioned that your DD didn't know her phonics. This can be a red flag for dyslexia. I would recommend reading up on dyslexia in general. The Sally Shaywitz book, Overcoming Dyslexia, is a good resource. You also can get a lot of good basic information on some of the dyslexia websites
http://www.interdys.org/

You also may want to search this site for past threads on dyslexia. You also will see the term "stealth dyslexia" used a lot to describe how dyslexia can manifest in gifted kids.

As others have said, if your gut is telling you that something isn't right, don't wait for the school to figure it out. I have a gifted dyslexic. The testing that your school did would not have caught my DD's issues.