I'm also interested in this, as DD2's school has just started using the scheme. She is in year 6 and can read competently, so I'm curious about it rather than personally much concerned about its effectiveness.
DD has a slight problem with level angst - she was allocated 'level 5 to 12' she said, after a comprehension test in school, and wanted to go straight to level 12 (Hamlet is 10.5). Then she discovered that what she wanted to read was on level 4. I've encouraged her to read what she wants, and promised to speak to her teacher if that's a problem - she's told everyone to make sure they're choosing books on the correct level, but I'm assuming there's a certain amount of leeway if the books are reasonably appropriate (Anthony Horowitz's Power of Five series in this case). My concern is that though DD loves to read, she's quite hard to please, and I don't want her choice further restricted by the limits of the scheme. The highest-ranked book she's ever read, as far as we can see, is Quidditch Through The Ages, would you believe (8.2), with HP And The Order Of The Phoenix, which she read in year 3, in second place at 7.2. Philip Pullman's Northern Lights is 6.2. I keep meaning to look further into how these levels are calculated. I'd be interested to know what Philip Pullman would make of it, as he disapproves of even putting suggested age ranges on the covers of his books.
Some of the levels seem to be a bit arbitrary at the levels for children who can read pretty fluently - I'm curious to see how people are finding the ones intended for younger children.
The comprehension tests seem to be quite popular (they remind of the Gareth Malone programme on boys and reading, where he was advocating competitive tests to motivate boys). DD is often reluctant to discuss what she's reading, so I'm happy that she's apparently demonstrating her understanding of each book.
Does anyone know how widespread this scheme is?