op I rattled off a response and didnt read your whole post.
If you go on the primary boards you will see regular posts about reading levels, they are a cause of angst among parents esp in the beginning so don't worry!
Reading is a very fluid thing and the child can suddenly race ahead but is still on basic reading level at school.
I learned the hard way to pay little heed to be honest. I was told in the early days they were often kept back due to writing skills not matching reading skills, ie ability to create good sentences and stories so it was good to keep them on simple sentences until their writing caught up.
Then I was told it was comprehension skills, but my questioning dd she seemed to me to have very good depth of understanding of various texts.
Then I was told by the last teacher that her reading was beyond expectations and way ahead for her age but in terms of the reading level books ( she is on 12) there is no where else for her to go ie other books too old for her and yet many other schools would just make my DD a free reader!!
Mention reading levels on here and you will have teachers come on and say - " its their comprehension, they are just de coding the words" when as a parent its clear that they do understand!!
So to cut a long story short, primary school board is the place for this advice generally, dont worry too much about it, what I and many other dp do is simply foster a love of reading at home, whether thats through magazines, comics....whatever, its helping to create that love of reading thats key above all else, and as far as reading books at school go, pay little heed to them really.