As for sealing the wood before painting, I don't think it is necessary for most woods. However if I really felt the need to seal the wood, I would use a strip of double sided sticky tape on a piece of cardboard, stick the letters to the top of the tape (to keep the letters from moving around) and spray it with a coat of shellac and let it dry for 30 minutes or so.
As for gluing the pattern down to the wood, you did exactly as I would have done it. I wonder if you may have sprayed both surfaces which would cause the repositionable glue to become permanent. Usually I spray only the paper pattern and let it set up for a minute before applying it to the wood. I some times have a bit of trouble removing it but, most of the time, it peals right off.
Otherwise, I agree with Julie.
Rog