I've heard that you shouldn't keep playing a sight reading piece over and over until it's in your muscle memory, so what's an appropriate speed to play at before you feel you've got it down?
60bpm? faster, slower?
Depends on you, and on the piece.
If you're truly trying to read at sight, you shouldn't play a piece more than once. After the first time through, it's not muscle memory you're worried about - it's aural memory - if you know what it sounds like, you're remembering that instead of reading it fresh. So you'll need a ton of material to practice with.
Go to the library and check out any music you can that's in treble clef in the guitar's range. Get flute, oboe, whatever.
Now open a book and play a piece, at sight. Make note of your mistakes - that's stuff you'll want to practice. But the goal isn't playing this particular piece of music... it's learning to read things just like this particular piece of music. So if what tripped you up is a measure in 3/4 with eighth rest-quarter note-eighth note-eighth rest-eighth note, write similar patterns and practice them.
All done with that piece? Now play it backwards. Some rhythmic figures are incredibly difficult inverted, so I just start with the last measure and play it... then start at the beginning of the next-to-last measure and play it, etc.
Done with that? Now read down the first column of measures, then the second. After that, read up the columns. (These last two exercises are only practical if the bars fall in vertical columns with each other, but that happens often enough)
There are two keys to sight reading well: the first is knowing where the notes are - for that, it's ok to practice a piece several times IF you use a different fingering each time. Melody in C? Play it open, then second position, then fifth, then seventh. Try approaching old stuff in new positions. Aural memory isn't such a big issue here, because you're learning how to get the same sounds all over the neck, and associating sounds (instead of just finger placements) with notes.
The other key is recognizing all the rhythmic figures at sight. Everybody needs to count at the beginning, but you want to reach the point where you hear the rhythm without thinking about it - then you only need to concentrate on pitch.
If you're starting from scratch, don't worry about tempo at all for the first few days, just play the notes. Then play VERY slowly, and pick up the tempo as you gain confidence - always working with brand new music. The 'right' speed for true sight reading is going to be at performance tempo, but it takes a while (several years, actually) to work up the confidence and skills to do that.
It takes regular practice to develop and maintain sight reading chops, but in my opinion they're well worth it. I can easily get through four times as much material as a guitarist who reads haltingly. That's important, because the more variety you play, the greater your ear and technical arsenal will be!
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