My DS's reading level at school has not changed since early 3rd grade (he's in 4th grade now). Did he plateau? Well, no. He hit the highest level they test for and so there's no room for him to be assessed higher. The other kids have not all caught up to that level, though.
At the beginning of the year he came home freaked out because his teacher said they were expected to read 3 chapter books per week. I told him to show her what books he was reading and she changed the requirements for him.
That said, his reading did not progress smoothly. He pretty much refused early readers and was only slightly above grade level at the start of 2nd grade. He was reading and understanding the False Prince (a middle school book) by the spring. So, imo, his reading level before that was fairly meaningless. His younger brother, now in 2nd, reads WAY better than he did then and is 9 months younger (May birthday compared to Sept.) He can pretty much read anything you put in front of him (although he doesn't always demonstrate what he can do).
Kids are all different and have different trajectories. Suggesting that that means they will "even out" in 3rd grade is just silly.
