sight word reading

Since E started back to school after the holidays, her teacher has been sending home "sight word" books. As soon as we are done one, I make my comments on the form that comes with the book, send it back and the teacher sends another. So far, we have done about 5 books. At first it was fun and clearly E was getting a kick out of "reading" her book. However, all she was doing was memorizing the pages, not the words. For the last couple of books, I have been asking her to find a word and tell me how it is spelled. I have also been spelling words and asking her to tell me what they are. This has had some really proud moments for me and some rather frustrating ones as well. I don't think that it is enough that E is memorizing how words are spelled if she isn't making the connection to how their sounds connect to each other within the word.
Today, I have printed off some words, admittedly from the Dolch word list, but we are going to be sounding out the consonants and vowels within them. Wish us luck!