Just because we normally aren't reading letter by letter, it doesn't mean we can't. We can recognize common words on sight, ignoring minor variations, because we've seen the words thousands or millions of times, but that doesn't somehow disable the much less frequently used ability to approach a brand new word.
I think that humans indeed identify words as a whole and do not read letter by letter.
However, this implies you need to know the word to begin with.
I can write "asdf" and you might be oblivious to what I mean. I can mention "adsf" to a JavaScript developer and he will immediately think of the tool versioning tool. Because context and familiarity is important.
I believe it's a bit more nuanced than that. Short ubiquitous words like "and" or "the" we instantly recognize at a glance, but long unfamiliar or rarer words we read from the beginning, one syllable or letter at a time, until pattern recognition from memory kicks in. All unconsciously, unless the word is so odd, out of place, mispelled, or unknown that it comes to conscious awareness and interrupts our reading.
