There are times when I think I am speaking a completely different language.
The OP said: My 5 year old now attempts to decode every word he sees, even those he knows, and even when he can see from the picture (or would if he lifted his head from pressing his 'magic sounds finger' against every letter/sound) what the word should be.
By my understand of the English language (as native born, aged, English speaker) OP is suggesting that her child use the picture to guess or confirm what the word he persists in sounding out and blending (silly boy...) 'is'.
This is not, in my understanding, using pictures to enhance the story in any way, it is using the pictures to 'guess' a word. I have absolutely no problem whatsoever with lovely picture books, I even enjoy 'pictures' to enhance what I am reading (lots of history & biography..) but if you think that pictures are there to help with word identification, why bother with words at all? Why not just have pictures.
The views of people who believe in the guessing from pictures strategy sadden me greatly because I work daily with the victims of this, and similar, strategies.
Are you a Reading Recovery teacher, zebededee? You sound like one with your 'word to word matching'. And with this:
If they insert a word that is not there they would immediately know this, slow down, re-read and try again drawing on their all their reading skills (including phonics). So they may say 'stairs.. hmmm or is it steps' then they could be prompted to use their phonic knowledge and eg 'say stairs because their is no p sound'.
Why do you make the poor child go through all this extra work when all they need to do is use their phonic knowledge to decode and blend the word? The tragedy is that this sort of unnecessarily complex 'teaching' muddles children badly.
It also makes them very prone to guessing most words. This might be surprising to some posters, but none of the children I work with in secondary school ever notice, initially, (things change after a few weeks...) that they have missed a word (or words) out of what they are reading, nor that they are 'reading' something completely different from what is on the page. I dread to think what they make of worksheets and textbooks out in the curriculum; not to mention questions on GCSE papers. I don't believe that they have any expectation that what they are reading should make sense (despite the frantic concentration of their teachers on 'reading for meaning')
The other notable thing about these poor 'reading as a guessing game' taught children is that most of them loathe reading.
I would say that it would do the 'mix of strategies' EY & Primary teachers the world of good to come and see just how their methods have handicapped their pupils. But of course, they would just say that the child was 'dyslexic'...['banging my head against a brick wall' smilie]