In reading about the infomercial, I wonder if the kids just learned how to associate a pattern with an object. So, maybe they could recognize "CAT" but not "cat" or "cat" in a slightly stylized font.
I agree with Kriston's point about possibly missing a sweet spot for other development. We taught two of our kids to read because they explicitly asked us to. The other one was less interested so we left it until mid-K, when he got more interested.
DD4 had figured out the idea already (eg, one day she said "I want to learn how to read!" and so I wrote CAT and she read it and then a couple other words with my friend looking on saying, "If I hadn't seen this with my own eyes...."
DD isn't self-taught like some of the kids on this board. Yet she sure can be close to voracious with her reading sometimes. I think this goes back to the desire to read thing: if they want to read, they will.
Val