Teaching Phonics is useful - at the initial stages

http://www.sdkrashen.com/articles/does_decoding_contribute/index.html
eight:bold;">Stephen D. Krashen
Does Intensive Decoding Instruction Contribute to Reading Comprehension?
Result, not Cause
This conclusion is consistent with the views of Frank Smith (2004) and Kenneth Goodman (see Flurkey and Xu, 2003) who have maintained that our ability to decode complex words is the result of reading, not the cause.
This position does not exclude the teaching of "basic" phonics (Krashen, 2004; Garan, 2004). A small amount of consciously learned knowledge of the rules of phonics can help in the beginning stages to make texts comprehensible, but there are severe limits on how much phonics can be learned and applied because of the complexity of many of the rules (Smith, 2004).
The Reading First Final Report thus confirms the common-sense view that the path to reading proficiency is not through worksheets but through books and stories.