We have a lot of reading volunteers and they have a good mix of things like Songbirds, ORT, Biff and sodding Chip etc.
That sounds like a thoroughly toxic mixture to me; just guaranteed to impede rather than improve progress in a child who may not have quite 'got it' in the first place.
From your teacher's comments it sounds to me as though she doesn't 'get it' either. Any teacher who thinks that sounding out words is indicative of poor reading skills has very little understanding of how children learn to read and how skilled readers read. (If she doesn't approve of 'sounding out' is it any wonder that he guesses instead?)
Go back to basics with him. What is is phonic knowledge like? Have a look at the 'sound' charts on the Phonics International website (www.phonicsinternational.com). Does he know all, or any, of the more complex correspondences (though at this stage in Y1 he isn't likely to have covered everything)? Do his books have words in them that contain correspondences that he hasn't yet learned?
Buy, beg, borrow or steal some decodable books for him to practice his reading with (Keep away from ORT in any shape or form unless they are 'Floppy''s Phonics). He will be a lot more willing to read once he finds that it is not difficult (which it isn't when he has the knowledge).
Don't allow guessing (because you will know that he has the knowledge and skill needed to sound out and blend all the words), once he is really practised in sounding out and blending it becomes automatic and he won't think about guessing any more (I suspect that he only guesses words that he can't decode).
Don't worry if he has to decode and blend the same word many times; it will get into long term memory eventually, for some children it just takes longer than for others.
Don't start stressing about 'dyslexia'; in an awful lot of cases it is just poor teaching. The 'official' definitions of 'dyslexia' usually contain a phrase something like 'despite adequate teaching'; this is bit of a weasel phrase because 'adequate teaching' is never actually defined, but it is the bit that everyone misses anyway. The first suspect in cases of poor reading has always to be the instruction the child has had. If the instruction has been rigorous, structured, systematic phonics with no other strategies for word identification and no expectation that children read words which are beyond their current phonic knowledge, then start to suspect a processing problem of some kind. But look at the instruction first.