Hey lenny (and John), you can only clean up the topology of each letter, if you convert the Text into a Mesh...
Like I said already many times, personally I wouldn't do this! Just try it and you'll see, that this is not so easy.
I don't really know, why you can't get the result you want, because in this last method (with the text "Texas"), there really isn't much tweaking to do any more! You have only one modifier left, the Lattice, and also in the Node Editor, there is mainly the scale of the texture and the strength of the Bump...The main reason I changed the method, was that there were getting more and more places where you could tweak something, and they all influence each other!
There are of course other ways, to go about this: for instance, you could model your own letters, by Mesh Modelling, (which is not that difficult with text, I think). This way you just start with a clean topology!
THE expert to see on Topology is Jonathan Williamson! Any of his tutorials on this subject will do!
I am convinced, that it will be less work, than clean up the topology of the Mesh created, by the Text conversion!
The stretching of the Text, when you try to deform it, is not due to a bad topology of the Text, but due to the fact that Text "doesn't have a topology"!
You are trying to bend a 2D plane in different directions; I think this is what causes the stretching! If you, against my advice, decide to convert it into a Mesh, and have cleaned up its topology, you will very likely still have this problem, the difference is, that if you for instance try to bend a 2D Plane (Mesh), it will just move in 3D space and will not deform! If it''s a Text, it tries to bend, but if you bend it to much, it "folds".