How to Create a "Selectable Letter" Tile?

There's a lot of swapping logic in this thread that's worth a look, from letter input selection to faking a computer cursor and some crank stuff : likely be good reference for what you're looking for:
https://devforum.play.date/t/how-to-making-a-name-entry-keyboard/

In terms of using items to "hover over" in that, you move the player onto it and then it doesn't collect/disappear, just override the "on collect do" event with a blank function, that stops the default collecting behaviour.

Don't know if that helps at all!