Tina,
I'm sorry to hear about your daughter's situation! As a former teacher, it saddens me to hear that her self-esteem has taken a beating.
I would contact the teacher and ask to meet w/her. Explain your concerns...how she did very well in 2nd grade and now seems to be struggling. Have the teacher explain the assessments and grading criteria for reading, writing, etc. Perhaps she can gather some "exemplary" writing assignments ahead of time to show you at conference time. Ask for ways that you can help your daughter. Remain calm, open-minded and approach the conference as a "we're in it together" attitude. If after a few weeks you feel the conference hasn't helped, then meet with the principal.
Having taught 1st and 3rd grade in SoMD and 2nd grade in another state, I can tell you that the transition from 2nd to 3rd grade is HUGE! Up until 3rd grade, the focus is on decoding words and fluency. Obviously, comprehension is important then, too. But it is usually guided and discussed ORALLY with the teacher. In 3rd grade, students are expected to know how to decode and the focus shifts primarily to comprehension. They are expected to read with less teacher guidance and eventually independently and respond to comprehension questions in WRITING, rather than orally. Furthermore, your daughter's school may have a one reading/language arts program K-2 and a different one in 3rd grade, making the transition even more difficult.
Remember, reading isn't merely pronouncing words correctly. It's gaining meaning from written word. Praise your daughter for being such an accurate and fast decoder...those are very important reading skills! Encourage and help her to make pictures (like making a movie) in her head about what she is reading (starting from sentence to sentence and then paragraph to paragraph).
I hope this helps.