From my perspective, "grade level" reading has to be a combination factors:
Decoding/fluency--which speaks to the ability to translate a sequence of symbols into recognizable words smoothly enough to maintain tone/meaning.
Basic comprehension--which speaks to the ability attend to the meaning behind all of those sequenced symbols and to apply reading strategies when the meaning breaks down.
Stamina--how long the student can read independently before losing focus and/or losing the thread of the story (comprehension can look very different when a student reads a short passage vs. reading a long article or chapter book).
Flexibility--how flexible is the student when it comes to genre. Can they read and comprehend both fiction and non-fiction at similar levels? Do they understand text features of different genres?
Advanced Comprehension--synthesis, evaluation and analysis of text.
Communication--ability to discuss text orally and/or in writing, extracting evidence from the text or elsewhere in order to support ideas, inferences and responses.
All of which is a long-about way of saying that I think the original two examples probably represent different overall reading levels, but really there isn't enough information until/unless we observe what Jane does when assigned Pride and Prejudice.
I don't necessarily think that recreational reading preferences represent reading level (although they MAY be indicators of stamina)since--as others have pointed out--we often read recreationally below our top ability.
So...what value is reading level? I think it actually can have a lot of value. If some skills are comparable to the typical 8th grader, some to the typical fifth grader and some to the typical eleventh grader, we can better target both instructional goals and identify instructional peers.
I see composite scores like the WJ-III (although I prefer WIAT for reading assessment) to be less about grade level and more about the understanding a child's relationship to the norm for their own age/grade. Regardless of grade equivalent score, a scale score that falls significantly outside of the norm on either end bears further investigation and consideration. When the scores are on either tail, it is likely that the instruction being delivered in the regular education classroom will not be adequate to meet the child's needs.
