I think I have a reader like yours in reception OP. Feels like some responses on here are responding to the "reception" part rather than the "fluent reader" part.
School have set DD spelling keywords consistently correctly as a target. They sent home a list which was the words from the KS1 keywords lists that she didn't already spell right. I think that or "most common words" lists would be a good place to start. We don't do weekly lists or anything, but I don't think you're proposing that. All we do really is occasionally see if she can spell one of the words on her list, and talk her through it if she can't yet.
While I totally agree that weekly spelling tests are a pointless waste of space, I do think some separating out of spelling from writing in general can be useful. If DD is writing a story I'd probably not interrupt to tell her how to spell "beautiful", but it's a word she likes using, so if she learns it then she'll be getting more practice writing it right and less repetition of writing it wrong. That seems like a good idea to me.
I would suggest
a) focus on the phonics when learning the spellings as some posters (mrz?) have mentioned
b) not drop a word when she's got it correct - I think one of the problems with weekly tests is they learn them then immediately forget them, it never gets into long term memory.
The playing with words, reading upside down or backwards bits are familiar too. I don't see any reason to discourage it tbh*, it's just playing. DD's tricks include deciding to decode all the words in a book backwards, or decode pretending she doesn't know any digraphs. It doesn't do any harm. She's not going to suddenly forget how to read, she's reading several books a day.
*well, okay, maybe a little, some of them can get irritating.