It sounds like what your little girl needs is a confidence boost. I used to work at Sylvan learning center so I have seen similar cases although of course all kids are different.
First and foremost the advice you have gotten to read to your step-daughter is the best thing you can do. Read to her and make it fun. You should keep asking her to help you read, but don't allow her to get worked up - back off when she struggles.
Kids should always have access to books below, at, and above thier reading level. You need to find some books with lots of sight words. Help her read those until she starts to gain confidence and then little by little add books with words she has to sound out.
When she asks for help, help her, but instead of saying the word sound it out for her telling her what you are doing. For example the word "share" I would say "I know s makes a shound like snake, let me see if I can figure this out . . . until you have figured out the word together"
Once you think she could actually read the book by herself, I like to pretend that I need help or tell the story a little differently and see if she catches it.
One other thing that you really should teach her to do is how to guess what a word might be from the picture - its a useful skill at all times.
Go to the library and have her help you pick out books that she is interested - remember the babyish ones are great for confidence building and the hard ones are great for you to read together.
If you would like some suggestions about books you can send me a personal message, but I'll warn you ahead of time that I am biased since I sell some awesome books for beginning readers as an independent consultant.