My child yesterday was watching me play Draw Something, and when it was time to draw for another person, he pointed at my iPad and said "Dada, pick 'Cry'" and pointed at the first entry – "Cry".
Now, I've suspected for some time that he recognizes some words, as he'll spend significant time sitting looking at books, and he's remarkably adept at figuring things out. He asked to play "Words" (iTouchiLearn Words) on my iPad, and I forced him into the game that makes you identify the word that matches the picture (he ordinarily prefers to match up the scrambled letters with the silhouettes of the words). He for 3 rounds of 5 questions each, selected the correct answer last, choosing the other two words first. Except for the last one, he chose it second. What's the odds of my child selecting the right answer last, 14 times in a row? 00.0000181633168% (That's .33^14). It randomizes the order of answers, and he always takes a different guessing strategy that chooses the right word last.
Why last? He likes to hear all the answers. He does it in his tablet's "Buddy Bear" app too, that's supposed to teach cause and effect. "Buddy bear wants to wash his hands? What should he use?" and he'll click the pictures of drumsticks and crackers first, before choosing soap as the last option, despite obviously knowing exactly what he needs to wash his hands.
So odds are, that Billy can actually read many basic words just fine, no idea what his comprehension is, but I definitely wouldn't put up a sign saying "turn this knob to escape this room" any time soon hoping he can't understand it.