I do not know what is causing your problem but you can select the text as before and go to Object> Expand or Object>Flatten the Trnasparency either one should work.
It would be nice to see your selected art and the appearance and layers panels expanded so we can see everything it might give a clue.
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.
That solved my issue.
In my case (same symptoms), I looked in the layers panel and found a hidden layer (containing no text) at the same level as a text layer.
I deleted that empty layer, selected all elements again, and the Type > Create Outlines operation worked.