I'm so glad this has never come up for us.
DS' reading levels were so far ahead of his comprehension in the early years, it was ridiculous. He *could* read anything, without having the slightest idea what it meant. The school expressed the occasional dismay about his comprehension levels, but even those were always at least a grade level ahead of where he was, and I just kept pointing out that comprehension comes with reading. You have to be able to read something before you can comprehend it. And of course he couldn't comprehend everything he read, because he could read anything you put in front of him. But he certainly wasn't going to learn to comprehend it if he didn't read it. I said, "well, he could read those things when he was 2, but he didn't comprehend any of it -- see how much he's gained?"
The school here has never put any limits on what a child is allowed to read -- or at least, not my children. DD7 did come home a while back with a book from the school library that she told me "the librarian said this was a 5th grade book." I said, "well, she let you take it, right?" and she said, "yeah". I gathered that there might be one of those things going on, from that comment, but it didn't seem to be a problem.
