Yeah, forgetting words is not an issue at all. If you think they should recognize the word each time they see it after sounding it out once in the story, then you're expecting them to memorize it (and all other words in the story) instantly, or treat it (and all other words in the story) like a sight word.
Ideally, the word would be familiar
, but if they're not yet used to looking at the whole word at once, then of course they'll sound it out again. Maybe that last one was "bag", but maybe this seemingly similar word later on is actually "big" or "bug" or "bad" or "hag".
My daughter is only 3, but she's starting to read and doing the opposite
problem heh. She'll sound out "map", say, then see another word "man", and she'll say "map!!!" because she recognized the start of the word -- remembering that the last 'm' word she saw was 'map' -- but didn't actually think about the end of the word. (She's only 3, I'm not worried lol... it's just interesting to watch how it develops!) If she stops to sound it out, or if I point to the last letter to remind her to check it, then she'll figure it out.
As for the 'too much reading' thing... I'd be willing to bet that the recommendation of "no more than 3 pages" is there for the PARENT's sake, so that a parent does not FORCE a child to keep reading in the mistaken idea that it will accelerate their learning. I think that if it's the child that's pushing for it, then by all means follow their lead.
As for making more mistakes at bedtime -- I think that's pretty normal too. Her brain is starting to shut down for the night.
I like the idea of alternating reading with her, to give her brain a break but still let her have her fun.
As long as she's still enjoying it (even with occasional frustration), I wouldn't worry about burnout. If the frustration is so great that she starts refusing to read, or something like that, THEN I'd say back off. But a little frustration is normal, with ANYTHING new.