That is exactly how it works now - users drag to select a sequence of contiguous characters. I haven't tried learning Chinese myself so I don't have a good handle on how pleasant this is to use.
Chinese traditionally had no bound morphemes and even now tends not to. I think dragging a sequence of contiguous characters should be good. Most words are two characters, but some are one, three or four. Many four word characters contain words within them.
This system should work.