This is extremely clever! It reminds me a lot of Baba is You and Scribblenauts which is a compliment! The puzzles are clever, but not too hard. It can also be expanded on so easily with different word functionality. The fact that the letters start as obstacles but then finding valid words removes them or condenses them surely will lead to great puzzles.
All in all a VERY clever game that I would love to see a full build of in the future!