Thank you for the response. Create Outlines is working for me now. The only thing I could conclude was that my PC needed to start afresh after several hours of working on it. Your suggestions was also very helpful! If it happens again...I'll post a screenshot of my workspace and we can go from there. Thanks again!
I believe you have encountered a simple (preference) corruption of some kind. I usually recommend the following steps for increasingly serious/difficult cases, starting with non destructive measures (step 4) is non destructive, but step 3) is easier); your soultion comprises step 2).
1) Close down Illy and open again;
2) Restart the computer;
3) Close down Illy and press Ctrl+Alt+Shift/Cmd+Option+Shift during startup;
4) Move the folder with Illy closed;
5) Look through and try out the relevant among the Other options;
Even more seriously, you may:
6) Uninstall, run the Cleaner Tool if you have CS3/CS4/CS5/CS6, and reinstall.
This happens to me today using CS6. I restarded Illustrator and even my MBP but still the crytical "Can't outline type" appears on every attempts. The problem was that I use 'select all' and 1 of the selected text-elements is in a grouped object and was locked so instead of outlining the selected one, CS6 choses to 'boycot' the whole action leaving the user troubled :-)
So make sure you release all of the type-elements first before applying the outline command. Hope this helps.