Correct, we have another word called 'letters'. As it pertains to this instance, when you take the letters of the word 'apple' and rearrange them alphabetically — they are no longer a word. Unless you would accept aelpp as a spelling of apple.

I sincerely doubt this is the first time this child has seen the term alphabetical order, I would be inclined to think the child is a clever smartass depending on the individual.
Either way, the situation is very simple to handle without breaking the childs self esteem.

'I totally understand why you came to the conclusion you did, and you did write the letters in alphabetical order! However, the instructions say to 'write the words in alphabetical order. Try again, I bet you'll get 100%!'

The child is most likely just wrong. Teaching them to think critically about their failures is not a problem. Treating them as if failure is some pit they need to forever keep from falling into definitely is, and not helping the child learn to navigate failure is infinitely more detrimental.