In InDesign CS3
Do you want this to be a one off usage for a single word or do you want to create a font. Adobe doesn't offer font making tools. There are other companies that do. If you are just trying to make a single word look like that I would re-ask in the Illustrator forum, since it probably has the tools you are looking for.
If you want to create fonts, then I'd recommend you look at some of the offerings of fontlab: http://www.fontlab.com/
The effect you are looking for is called an inline effect.
You can do this with a drawing program such as Adobe Illustrator, or in a dedicated font editing program such as TypeTool, Fontographer, FontLab Studio, or FontForge.
Either way, it is *not* an automatic function to draw an inline effect. It's done manually. You can get an atuoamtic outline, but not an automatic inline.
If you need a generally usable font then you need a font editor. If you just need a one-off logo, then something like Illustrator is your best bet.
Alternatively, you can find a pre-existing font that already has an inline effect designed into it. Search for "inline font" and that should get you some.
Yes it's just a one off logo, not a whole typeface.
I'll give it another try in illustrator.