I'm a tutor and I work with a lot of dyslexic kids. Your little one is just 7, right?
That's great! Catch it young and work hard on it before they get frustrated and hit the tween years; even with unschooling, chronic sources of frustration and poor performance can lead kids to completely shut down. This is the biggest pitfall ime, these kids form really negative views of themselves and academics so imo you absolutely must work on it now, intensely so they have some good coping skills in place before they hit puberty.
So my vote is to throw everything you have at it now. I would also pursue testing and some expert input. Even some private tutoring.
Now you don't necessarily have to drill every day, but you are going to want to work on reading skills consistently whenever you can.
With my kids, I never give them tons of work, I keep it short and sweet and repeat and repeat.
Fun tools I use with my kids...
Games like Taboo and Balderdash (might be a bit old for 7 though)
5 minute or 1 minute mystery books that we read and solve cooperatively
Very short worksheets for reading comprehension, meanings from context, critical analysis etc...
Also understanding how open syllables and close syllables affect vowel sounds is important.
The reading strategy I use with my students is:
-Start with what you know. Frex, 'intelligence' completely bamboozled my student today. But they knew the word 'tell' and 'in' and once they put that together, the rest of the word came together.
-Be sure the letters are what you think they are. Dyslexics have a hard time with b,p, d and q in print as the are very similar but for the direction of the line. I have my students physically trace the line or even the entire letter with a finger as they read to help them see the letter correctly. (To enhance visual discrimination, we model these letters in playdoh and also use a blindfold where they have to identify the letter by touch alone.)
In the same vein, I see a lot of extra letter insertions. An S or B or R where there aren't any. Watch for those imaginary letters, in my experience, they tend to be the same ones over and over. Once you alert your child that they have a tendency to insert extra Rs or Bs that aren't there, they can then learn to stop and double check for those letters before reading on.
So, basically, find the weakness and give your child a corrective action that compensates for it.
As a tutor I do the following...
-Teach and drill spelling patterns such as -ck, -dge, tion, atch etc...until they are second nature. I spend maybe 10-15 minutes a session on this.
-Have your child read a paragraph out loud and then quiz for comprehension. This takes less than 15 minutes. You want factual paragraphs that have key points like numbers and data that need to be retained.
-The colored plastic thing bears investigation. My training included a news interview with the researchers pioneering that solution for dyslexia. It was remarkable. You can get transparencies from Office Max type places in different colors very inexpensively. Try several different colors just to see if it helps.
-Spell words with playdoh. This is a great multi-sensory tool that really helps dsylexics grasp how words work. Do one a day in just 5 minutes.
One book that you may find helpful is Smart Moves
. Written by a scientist who works with LD kids and talks about the neurology as well as kinetics of learning--really helpful book on understanding the physiology of learning differences.
Hope that helps.