She sounds like my oldest daughter. I was convinced that she had a photographic memory and didn't give it much thought. I still suspect she has a photgraphic memory, but she also picked up phonetics very easily.
I would definately back off whenever you sense she's getting frustrated. If she knows all the letters and the sounds they all make you could show her how to blend the sounds together to figure out the word.
I also am partial to all Dr. Suess books for emergent readers, but that probably has more to do with the fond memories I had of reading those books when I was little.
I gave both girls Hop on Pop to start. It's nice because at the beginning each page only has one word and then progressively more words are added the further you get in the book.
Both girls seemed to really like starting off with that one.
