Many echoes to comments above. If your DD does have phonological issues, the sooner you catch it the better (our DD only just got diagnosed with dyslexia at almost 8 - argh!). A recent Stealth Dyslexia thread mentions additional early signs and experiences, and the Shaywitz book has tons of detail of what to look for even in very young children. If you see concerns in these more detailed descriptions, it's worth following up sooner rather than later. Also, note that trouble with letter-sound correspondence can result from auditory processing issues (not just visual ones); might be worth a look at APD as well to see if anything resonates.
http://giftedissues.davidsongifted.org/BB/ubbthreads.php/topics/212667/From your post, I get the impression that your DD is generally doing well working at the level of the class and the older children, with just the exception of reading? If she seems to be in the right place with the exception of one skill set, it's worth seeing what you can do to fix that gap and keep her in her overall best-fit placement. And if there is an LD, keeping her back won't help! "More of the same" is as useless for LDs as it is for giftedness.
But regardless of whether there is a problem or just a developmental lag, you could easily give her a reading boost in the meantime, while you sort out whether professional intervention may be needed. We're using a home-based OG program called All About Reading (yet again, thanks aeh and other advisors here!). It's structured to be used for both beginner readers as well as remediation. This kind of program would be a big help to any novice reader, and essential to any of the 20% who will struggle to read without without explicit instruction in decoding. While our school and various professionals are slooooooowly grinding through their processes, assessments, appointments and arguments, we've just kept chugging along with the All About Reading, and have seen a stunning improvement. It's by no means everything our DD needs, but it's an immediate, cheap and effective starting point that doesn't have to wait on anyone else to get their act together.
