dd1 knows all her phonics, and has done for years now (she knew them at 3/4, and is nearly 8).
she still has huge trouble blending and decoding - it is getting better, and slowly improving, but she reads (at about reception level, can manage ORT level 3/4) mostly by learning the words.
we do carry on with the phonics, though, as it will (hopefully) eventually help her to carry on reading at a higher level - obviously currently she is stuck if she doesn't 'know' a word.
dd1 does tend ot learn thigns out of order, though - she likes to be able to do the higher order skill (and needs to be able ot do it, in order to sustain interest), and then is good at working at filling in the blanks (eg, she has jumped ot reading by whole word recognition, and is now putting in the work to fill in the steps she needs to be able to decode fluently)
the hardest thing I have found is getting enough different resources of the right level, as once she has read a book through once, she has it memorised perfectly, so cannot 'test' her blending/decoding skills at all. found the OPen University My story app fantastic for this (if you have an ipod/ipad!) as could make her new picture books every day, and check her reading/recognition, rather than her memory...