Update:
He decided to finish Mr Fox last night and read the remaining 70 pages in 45 min. He stopped to ask me what a souvenir was (with perfect pronunciation). I was also impressed when he saw a semi-colon; he stopped and got really excited, showed it to me and read the sentence with it out loud (three times in that book--one on back cover). He then read 1/3 of a Giraffe the Pelly and Me. Then he came up with the idea to write a book report (really I think he just wanted to use the iPod in/at bedtime, which is a new rule against that). I have no idea where he learned about book reports--maybe a cartoon? It was super cute though-- typed on the iPod and emailed to me. It included what the moral of the story was.

So I'm going to go ahead and say he reads at a 3rd grade level, seeing how easy that was for him. I think he just needs confidence to tackle the longer books, as we only gave him his first fiction chapter book a little over a month ago. Before that I wasn't even aware that entry level chapter books existed--love this forum for that reason. Just ordered from Amazon Hank the Cowdog...but I think his confidence is already increased by last nights read, and that he may jump into a longer Dahl book very very soon. It certainly is his favorite author at the moment!