TrappedNerve, that sounds like a bit of a nightmare! So, she's having to read through 10 of these easy books per week in order to 'get through' red and move up to the next level (which might also prove to be too easy) - and she's reading at a higher level in guided reading, so presumably she's not the only one capable of reading 'ahead' of her level.
For the first term DD's school got round this by giving her the 'easy' book but also one that matched her actual reading level. The easy book had a worksheet so she got some homework. After a term they gave up on the easy book and she just goes to another class to choose her books. She does phonics with the rest of her class though.
One option for you might be to basically give up on the school reading system, let your DD read a red book once or twice a week, and supply all her other books yourselves, making a note in her reading record at every possible stage. However, it seems awful to have to do this so early on in school.
You've probably thought of this before, but if they read from a specific scheme at school, I'd make sure you don't read any scheme books at home, or else it could get even worse later on if the school force her to re--read any books in order to tick their boxes!
I guess there's always the possibility that next year the teacher will be a bit more flexible? It's only a few more weeks...