I'm not an expert, but it seems to me that there are many, many things involved in learning to read -- memorization (sight words), sounding out, picking up cues from context and pictures (guessing), etc. -- and kids use all of the tools they have at their disposal to learn. I suspect with a lot of gifted kids, a better-than-average memory has a lot to do with early reading... knowing sight words at such a young age is actually quite an accomplishment.
At 2.5, my DS was recognizing sight words like "cat" and "mommy." Then he started spelling his classmates' names with magnetic letters on the fridge -- names like "Nicholas" and "Shreya" that would be difficult to figure out phonetically. Real reading came quickly after that, by 3 or so, but he didn't do a lot of sounding out... it seemed like his internal catalog of sight words just exploded. Anyway, blah blah blah... I guess I'm just trying to say that I wouldn't play down the importance of memorization in this process.

It's so fun to have an early reader... I love language and literature, so I was THRILLED when my son showed an early interest.
