Some children come with a natural ability to blend, segment, and manipulate phonemes but others need instructions and they are not ready until they are a little older. I wouldn't panic yet about LD even with all the reversals but it's definitely something to keep an eye on. I've recommended this book before but Reading Reflex is a good place to start for parents:

http://www.amazon.com/Reading-Refle...378521510&sr=8-1&keywords=reading+reflex

Most libraries should have a copy.

This is another program that looks pretty interesting to me; I might put DD on this later to solidify her code knowledge :

http://www.logicofenglish.com/

If you are really uncomfortable with inventive spelling right now, you could gently point out the difference between conventional spelling and inventive spelling and the importance of knowing how to spell the agreed-upon way and how that is part of being an educated person. I find this little speech works best around the middle of 1st grade but your DS might listen to logic better than most K students.