I have purchased Powdered Irish Moss over the years. Don't know if it worked better, but it is a fine powder.
Yes you should rehydrate it. Learned that from my friend who makes some of the best beer I have had the plesure to drink. I say that because of all the attention to detail he has in his process, including rehydrating his Irish Moss. Lots of little details can add up to better beer being brewed.