1) My DD8 had me reading Harry Potter to her when she was 5, so that's a definite "yes."
2) The book my DD currently declares to be the best one she ever read falls right within that same level you described. It's called "The Castle in the Attic." There are two of them, actually, and DD found the second one first (she found it in the library, and decided to read it because the cover reminded her of, yes, there's a theme here, Harry Potter). The first one is called "The Battle for the Castle."
But honestly, my DD is all over the place when she reads, because it's more based on interest and content than how challenging it is. I wouldn't be surprised if your DD could comprehend even more challenging reads, especially if you're the one doing the reading, as you can fill in any gaps on archaic language, idioms, etc. that might be expected to go over her head. So if I were you, I wouldn't worry too much about the reading levels.
