Sounds to me like your DS is doing really well. DD finished P1 on ORT level 4, moved onto Chapter books mid P2 and is now (P3) reading Charlie and the Chocolate Factory. She is in the top group in her class but I know that there are others in the year group who started school able to read already (although I don't know what they are reading now). As another poster said comparing with others probably isn't the best thing to do. If your DS is progressing over time then that is great.
DS is due to start school in August and I'm going to do my best to not compare him to where his sister was at the same stage because he is going to be 7 months younger at the start than she was (although it is going to be hard).
I don't think there is a typical level: in P1 ds "read" all the books (Biff and Chip etc) but I knew he wasn't blending. In the P2 he got lots of 1:1 extra tuition (they were relaxed as they said that some kids, especially boys, just don't "get" reading until they're 6+) before dropping him to the middle group for his confidence. End of P4 (or was it P5?) he was moved back up to the top group for language/literacy.
He's now in S1 and in the top set, and already doing Shakespeare as the teacher wants to stretch this class as she thinks it is a tremendously talented cohort.
It just illustrates that you can't predict from P1. If it's a good school, they'll be stretching the kids as appropriaite and ensuring that they're not just reading but understanding what they're reading.
Keep encouraging your ds to free read - that's the most precious skill/enjoyment you can inculcate in him.
If the book is familiar to them they can probably read one far more difficult than they'd get at school. I think it helps children to read books they're familiar with. There was an argument a while back about whether reading the Gruffalo is proper reading or not because many children will already know the book. But I think it doesn't matter whether it's proper reading or not. I'm not even sure that it's not proper reading. It probably depends on the child. My daughter was reading Old MacDonald to her sister this morning and concentrating hard on the words as she read. Of course she knows the rhyme off by heart and has done since she was two. So why did she need to concentrate?
Please don't worry about that level the other children are on. Do you feel his reading is progressing steadily? Is he developing skills for sight reading as will as sounding out unfamiliar words? Schools don't all use the same reading scheme so the colour band / level isn't a good way to compare. If you have any concerns at all, ask the teacher. I am always happy to alleviate parent's concerns, especially in the very early years of school!
I think there is no typical level in Reception. My DD couldn't read at all when she started and it took until Easter for her to move to stage 3 ORT. Just before Christmas she finished books level 8-9 and reads Usborne young readers.
In her class was a girl who could read The Gruffalo fluently before starting school.
I'm just wondering what level is typical for the first year at school? Ds1 is in primary 1 (he was 5 in Oct) which is the scottish equivalent of reception I think. His reading has really come on since starting and he is on level 8 books (purple band) but I have no idea what the other kids are on and don't feel it's the done thing to ask other mums?