A couple months ago when L and E were just a little over two years old, I purchased Meet the Sight Words just for fun to see if they'd pick anything up. They both already knew the uppercase alphabet and most of the lowercase letters, as well as all the letter sounds (thanks to the Leapfrog Letter Factory video). Both the girls (but especially L) have been displaying other signs of reading-readiness as well, but I didn't want to push anything. To my surprise, thanks to the video series they now know approximately 40 sight words! I'd love to take credit, but it really was all from the video..
To re-enforce the sight words they've learned, we do a variety of fun activities, most of which involve physical components like hitting sight words with fly swatters, running to the other side of the room to fetch sight words and then putting them into a box, or jumping over the sight words. Here is Linnea demonstrating:
She doesn't get them all right, and some of her pronunciation is a bit off (I think she says 'hat' instead of 'had' and 'here' instead of 'her'), but it's a lot of fun. Sometimes we put the flashcards in a big circle all around the house and the girls will go around and around jumping over them.
The best part about learning sight words is that now when I read stories to the girls, I can point at words that they know and they understand the context - that they haven't just memorized random patterns, but that they know words that will help them to read (and we LOVE reading).
We're also doing a lot of activities that involve phonics, identifying what letters words begin and end with, rhyming words, etc.. I have a feeling that over the next year as we continue into homeschool preschool, everything will just click and I'll have two very young readers seeking out new books to absorb...