Most of the "sight words" on the Dolch list can be learned phonetically, and I try to take that approach. I just make sure that those high-frequency words are part of the phonics practice when we get to that particular word pattern.
Here's a totally awesome article for explaining how to teach the high-frequency words according to their phonetic patterns.
http://www.thephonicspage.org/On%20R...ightwords.html
(Peruse the rest of the site to get lots of information for phonics and teaching reading too.)
According to this author, there are five words that must be learned simply by "sight:" two, buy, laugh (these are irregular), one and once. The rest of the 220 Dolch words follow a phonetic pattern or conforms to a regular pattern of "exception." The full list is here.
http://www.thephonicspage.org/On%20R...by%20sound.pdf