Yes, but I noticed you can pick up single letters on eBay. Also, they offer expansion letter sets (lowercase) to supplement the set that comes with the unit.

Not really, i mean we find them all over the house but we still have them all now three days later.

No - I only let the kids use it on the fridge and they know not to take the letters all over the house. I will find a stray letter in the play kitchen, being 'cooked', but if you tell them from the start to only play with it in one area, then you shouldn't have a problem with losing pieces.