S, age 4 and a half, is about as literate as one can be without being able to read. Many of her favorites are the types of early readers generally associated with first-ish graders, like the Frog and Toad and Little Bear series; she just listens instead of sounding out the words, at least for the moment. She's an engaged listener when adults read aloud to her, often offering instructions on just how scarily to read about the Dark Frog today. She also follows along when she listens to both series on CD, and I imagine the transition to literally reading these books will be virtually seamless. Her comprehension is clear; she often pretends to be the characters she's read about or uses their expressions ("Never better!") correctly in conversation.
S particularly impressed me this evening when she told me the story of Wolf's Coming, by Joe Kulka. I wasn't familiar with the book, and in fact just identified it now through the magic of Google, but I'm pretty sure I heard it word-for-word, complete with expression, sound effects, and pauses in the right places.
Now that's reading readiness.