The game idea is good, though.

You could make the letter images with alpha (transparency) so it would look black or depending of the background you had chosen for it. As i see on the SWF, you've used images instead of fonts. Good idea, because the fonts and web-safe fonts could make some troubles when playing. If you choose the infinite level, when you play, it will say "Level: 13". You could make it say "Infinite level" instead. Also happens with the tutorial (there can not be 2 levels 1). I could also notice that the gameplay buttons (pause, undo, submit) don't work always, maybe because of an issue with the keys.

Conclusion: Good game. Can it be better? Of course.

Good luck!