My understanding is that they should learn how to read during kindergarten. That said, my 4 year old will not be attending school this year because his birthday is not until the end of October....but he can read a little bit. (Just beginning to). My neighbor is a kindergarten teacher and she says the kids are at all different levels and this year is the year to get everyone on the same page and ready for the next grades.
Does he know/recognize his letters yet? If he's not proficient in this, then I would suggest The Letter Factory (a DVD from Leapfrog) that talks about the letters and some basic phonics, and get something like an alphabet puzzle (we have a big train floor puzzle that not only helped with normal skills that puzzles help with, but also helped solidify what the letters look like and what order they go in...we had to sing the alphabet song after placing each letter, until we knew what the next piece was at first, but that's because he was doing the puzzle a little before he was 3). Don't stress out over it, just stay cool and make it a casual fun time, and keep working on it. Let him get on the computer to play "games" and he can go to starfall.com and practice there. (All he needs is the mouse--to click on the letters and see them while he hears someone say the letter, the phonetic sound, and then pictures of things with that sound....you can do that normally, but it's a "game" to children if they're on the computer).....after he's got a good grasp on the letters, you can move to the "learn to read" part of the site where they can start putting those phonics together to make words. You can click on "an" for example, and they'll sound out a - n to make "an" and then pictures of things (pan, can, fan, ran) and the child chooses the letter to put in front. Once they get that going well, they can move to little online books that you can "play" with. After that (and the calendar and all the other "stuff") they can move on to "It's fun to read" where they can go further but we haven't gotten there yet. We are in the little online books and picking out the words. And he writes notes to his grandma, grandpa, and sometimes a note to stick in daddy's lunchbox. I looked up "sight words" online and printed them off, and have them on index cards. We practice the words and talk about them, he knows 15 by sight now. Personally I don't understand the whole sight word concept (to me a word is just a word), but that's what his elementary will use, so it's what we do. He does fine with it. It's a process. Don't stress it, but yes I think you do need to "work" with it at home too! (I think school can practice but I don't want to trust them with all the responsibility of teaching my child....I want to do the teaching as much as I can, and they can practice, review, give other ways to look or think about it, and have fun...when it all comes down, I feel that his education is my responsibility right now.)
I laughed when I read your SWH....I think that's an age / maturity thing more than anything else. He's been free to color the balloons whatever he likes, and now suddenly he's being told to color things certain colors. My son would do the same thing yours did. I don't know what's "right" in that case, but I think it's normal.