Back to the OP. You can use your favorite scripting language, such as PHP, along with some graphics and font libraries (GD, imagemagick, freetype) to render text based on the contents of a string. Render each letter one at a time if you'd like, distort and then composite. Repeat. When done, display. But I'm sure you can find something out there already doing this if you search with some different terms.

Like this one: http://www.phpcaptcha.org/