These sounds are very difficult for a young child to hear. All this huffing and puffing and picturing of the letters provides excellent practice for them. They are learning to use print for their own purposes. Their messages are being composed and written in what we call phonetic spelling. They know this is different than standard spelling but this allows them to communicte their ideas earlier.
All attempts are encouraged and accepted, there is no right or wrong here.
You can see how the process progresses as the children begin to use their early emergent reading skills to help them to write and use their early emergent writing skills to help them to read. When your child was two, strangers probably found it hard to understand their speech. When you consider that each child constucts their language differently in their very own unique way, then you begin to understand the immense complexity of our language learning system. We still understand so little about the actual ways children construct this knowledge, but we are slowly learning. I doubt if it is possible to put it all together.