hi i am a year 2 teacher (and a mum)
i would expect all basic key words to be spelt correctly by the end of year 2.
we use the look, cover, write, check method to learn how to spell them.
all other words should be readable so should have 1st and maybe last intial sounds. However saying that it is much more important that a child uses a good vocabulary so shouldn't get to hung up on spelling.
if you are working on sounds you need to practice orally before you start writing down. Also a small wipeable board is great for learning spelling as the child can have a go.
start with cvc words like fox, bag etc then move onto ccvc words like trap, snap
build up slowly - remembering 5 sounds takes time and practice.
letter combinations come last sh, ch etc
hope this helps.
also your teacher can probably read his writing (i can all of my children) so it is not the end of the world.
spelling always is a big thing to parents (i know i still stress about my ds spelling in year 4) but we teachers are also interested in "creativity", sentence structure, punctuation, and hand writing as well as spelling.
does your teacher have anything constructive to suggest?