Your code doesn't work because your event 78 checks if Word contains all words!
It basically says "if text is sensei AND arigatou AND ashita AND ..."
It should be an OR block.
But again, this code is extremely inefficient... You shouldn't use Text objects just to store single words.
I fixed this event, created Letters sprite with a few animations (you should add other letters) and cleaned up your Battle event sheet:
Of course, there are still a lot of unresolved issues -
1. I can drop letters on top of each other.
2. If I used "se" letter once, I am unable to use it again. (sensei needs two letters)
3. If I pick up letters again after I dropped them, or if I change their order, the Word.text should be recalculated. Currently a letter is just appended at the end, which is wrong.