The -d- to -l- alteration in Latin is the so-called "Sabine -L-"; compare Latin olere "smell," from root of odor, and Ulixes, the Latin form of Greek Odysseus. The Medieval Latin practice of writing -ch- for -c- before Latin -r- also altered anchor, pulchritude, sepulchre. The -y- is pedantic, from the former belief that the word was pure Greek. Earlier in the same sense was lachrymental (1620s). Middle English had lacrymable "tearful" (mid-15c.).
The second -r- changed to -l- in late Middle English by dissimilation. An emblem of victory or of distinction, hence the phrase to rest (originally repose) on one's laurels, first attested 1831. Related: Laurine (adj.).
1510s, "one who steers a ship," especially one who has charge of the helm when the ship is passing in or out of harbor, from French pillote (16c.), from Italian piloto, supposed to be an alteration of Old Italian pedoto, which usually is said to be from Medieval Greek *pedotes "rudder, helmsman," from Greek pedon "steering oar," related to pous (genitive podos) "foot," from PIE root *ped- "foot." The change of -d- to -l- in Latin-derived languages ("Sabine -l-") parallels that in odor/olfactory; see lachrymose.
The transferred or figurative sense "a guide, a director of the course of others" is by 1590s. The literal sense was extended by 1848 to "one who controls a balloon," and by 1907 to "one who flies an airplane."
As an adjective, 1788 as "pertaining to a pilot;" from 1928 as "serving as a prototype," thus the noun pilot meaning "pilot episode" (etc.), attested from 1962. A pilot light (by 1890) is a very small light kept burning beside a large burner to automatically light the main burner when the flow is turned on.
According to Watkins, perhaps via Etruscan from Greek diphthera "tablet" (with change of d- to l- as in lachrymose), from a hypothetical root *deph- "to stamp." In this sense it replaced Old English bocstæf, literally "book staff" (compare German Buchstabe "letter, character," from Old High German buohstab, from Proto-Germanic *bok-staba-m).
Latin littera also meant "a writing, document, record," and in plural litteræ "a letter, epistle, missive communication in writing," a sense passed through French and attested in English letter since early 13c. (replacing Old English ærendgewrit "written message," literally "errand-writing"). The Latin plural also meant "literature, books," and figuratively "learning, liberal education, schooling" (see letters).
The custom of giving the school letter as an achievement award in sports, attested by 1908, is said to have originated with University of Chicago football coach Amos Alonzo Stagg. Earlier in reference to colleges it meant "university degree or honor that adds initials to a name" (1888). Expression to the letter "precisely" is from 1520s (earlier after the letter, mid-14c.). Letter-quality (adj.) "suitable for (business) letters" is from 1977. For letters patent (with French word order) see patent (n.).