From what I can tell, fluent readers are looking at each letter. What happens over the years is that the brain processes the information faster and faster. Similarly, when a person can play piano from sheet music, they can sit down in front of a totally unknown piece of music and play it. Their brain is processing each note — skipping notes would make nonsense. We know such players have not memorized notes in advance.
I have about 10 videos on YouTube explaining the case against Sight Words. Here is the shortest of them (3 minutes):
http://www.youtube.com/watch?v=D_fIXd9vp5c
And here is the one with the most views:
http://www.youtube.com/watch?v=SCNDFTBkPBQ
Or search Phonics vs. Sight Words for others.
[I see from the videos that this is a special interest of yours, so I won’t hesitate to write about it at greater length.]
In my opi...n, you can easily understand that last word (after ‘In my opi....’) without needing to focus on all the letters or vocalizing them. That’s because you’re familiar with the word ‘opinion’ — have seen it thousands of times — and are used to seeing ‘In my opinion’ in discussions like this one.
Let me emphasize again, though, that I agree with you that phonics can help with unfamiliar words, and that it may be the best foundation for teaching beginners to read (or, at least, it should be introduced at some point in the process and play a big role). Obviously it’s helpful, when you encounter unfamiliar words, to have rules for figuring out how they are pronounced — or probably pronounced — and what the various roots, prefixes, suffixes mean.
After you’ve figured out a particular word, though, and seen it hundreds or thousands of times, you should be able to take it in at a glance, without sounding out every individual letter. Fast readers do that, slowing down occasionally to “decipher” an unfamiliar one, but most of the time zipping along taking in words and phrases at a glance.
Though I’m not an advanced musician, my experience at a beginning and intermediate level makes me believe that good musicians do something similar with music too. They “decipher” as beginners or when learning very difficult and unfamiliar pieces, but the notes of nearly all styles of music occur in familiar patterns, some of which can be anticipated.
When pianists play melodies and chords using seven or eight fingers at a time, with rapid successions of notes, they are helped by their ability to anticipate the chord changes (or take in the shapes of the chords at a glance), based on their familiarity with the patterns that occur in the key they’re in. Not only can they read music that way, they can create it (improvise) based on the same principles. It’s much easier to envision their doing that competently than that they’re perceiving and consciously translating into muscular movement every single symbol for every single note.
Also they have a feel for whether they’re creating tension or resolving it, and because of years of practice their fingers naturally tend to go in whichever direction is needed to do that. They focus on some individual components of the patterns, of course, but their minds supply the rest — unconsciously and with surprising accuracy — based on the practice that they’ve had in playing similar or identical patterns. I believe the same happens with fast readers of familiar words and phrases. When you see ‘Consciously or unconsc........” in its context in the paragraph above, do you really need to see the rest of the word?