I have a text box on my page (page.htm) say the user enters "MyImage" into the field and clicks submit, we now are taken to the image page (image.php) where an image is generated with a transparent background, and the words "MyImage" except this is not written with TrueType fonts, it is made with other images ranging from a.png to z.png to spell out whatever is in the text field in page.htm, is this at all possible, or does it have to be done with TrueType fonts?

Of course you can position images however you like, using the gd library. You will probably have to do the position calculation yourself (allowing for the widths of letters, and doing line breaks.

If it's really simple, you could just assemble a row of images in html -- that's how I do the "nnn puzzles in stock" on my shop page: http://imaginatorium.org/shop/shop.htm

See the PHP: GD - Manual and at phpgd.com. You'll probably can find there want you are looking for. Or google some more for "php gd".