I think I have found a possible solution to our logout problem...
I have found out that WP 2.7 uses (in part) PHP code and not the standard HTML code. Therefore, you will need to download and activate the plugin/widget at this link (this widget accepts both HTML and PHP):
This is a text widget and acts like a sidebar. Once it has been installed and activated, follow these steps:
1) Go to your dashboard.
2) In the "Right Now" box (towards the upper left hand side of your screen), simply click on the word "Widgets" within the section that says "Theme (name of your theme) with (number) Widgets."
3) You will now see a list of available widgets. Click "Add" next to the PHP Code widget. You will notice that the PHP Code widget is added to your list of Current Widgets on the right hand side of the screen.
4) Click on "edit" within the PHP Code box. (for some reason, the edit feature only works within Mozilla Firefox for me, not Internet Explorer).
5) The box will expand and you can add a title (like LOGOUT) in the upper section of the box.
6) Now enter your php code in the remaining section of the box. It is here you can insert the famous code that we keep reading about:
<a href="<?php echo wp_logout_url(); ?>">Logout</a>
7) Click "done" on the lower left hand corner of the PHP Code box.
8) Click "Save Changes"
Now, once you visit your blog site (where this widget is inserted) you should be able to logout of WP 2.7 by clicking on the word "Logout"