I've been teaching my daughter to read with a terrific book called Phonics Pathways. Before we started, she knew the sounds for all her letters, including short and long vowels sounds. (The Leap Frog videos are GREAT for teaching beginning sounds!) If she hadn't known those sounds first, we'd be having more trouble. The book begins with the short vowel sounds, moves up to blending one consonant with a short vowel, then adds an ending letter, etc.. She was showing no interest in reading a few months ago, but in a couple of months, she's already able to sound out several words and recognize on sight many that she's become familiar with.
Reading to your daughter IS important, but there's nothing inappropriate about teaching her beginning phonics, either. It won't ruin her reading skills; if anything, it will strengthen her ability to decipher words rather than simply memorizing words and guessing at those that aren't familiar. And if you find the right book/program, you are perfectly capable of teaching your daughter phonics; you don't have to leave it to the teachers OR be determined to home school in order to teach her yourself. However, you also should be prepared to work at her pace and readiness level. No matter how sharp she is, she may take time to develop some of the skills needed to read. It's important not to become frustrated or to try to push her to the point where she becomes frustrated. Keep it fun; stop when she becomes too easily distracted or frustrated; and most importantly, enjoy it! It's really a neat thing to watch them catch on.