I do not know why you are fighting this so hard.
Believe me, I've asked myself that too. I just like to understand things really. I want a narrative in my head that explains to me why this is right and that is wrong. I haven't got there yet, though one of your other comments may be a help.
No, it is not. It is doing precisely what you describe, just reading words immediately without having to sound them out. But there is a neurological difference between 'learning' words as global wholes and 'learning' them through the decoding and blending route. It activates different neural pathways in the brain. 'Whole word' learning also, whatever you may believe, confuses a great many children.
I think this could be the crux of it. So they do know the word as a whole, it's just the way that goes into memory that makes the difference? If they learn the word the phonic way as described in Letters and Sounds until they can read it immediately at sight, can they then drop the particular unusual phonics they needed to learn it until a later stage?
If that is the way it works I would certainly be fascinated to read the research behind it, what exactly has been tested and how.
Intuitively I'd expect there to be a big difference between "this is a word you can't fully decode yet, look it begins with th which you know, this word says the" and "here's a flashcard, you need to just learn it, this word says the."
A lot of the arguments made by the phonics purists (if that term's okay?) here seem to be against the latter type of teaching, so I'd like to know if they also apply to the former, and if that's evidenced or just assumed.