I had a tweak running on J1.5 that changed a Login menu item to Logout 'Username' - similar to what you see on the Joomla forum menu bar.
Since 1.6/7, the core files have changed and the tweak sadly doesn't work any more.
However, if you use this component, you can almost achieve the same thing. The trick relies on two menu items next to each other - one says Login, the other says Logout. Only Guests can see the Login option, only Registered Users can see the Logout option, so effectively you can create a Login/Logout button that changes state according to the type of User - and you don't have to hack any Joomla core files!
All this component needs (to make it absolutely perfect), would be an option to include the Registered username after the Logout text.
For now though, it is the best solution for a dynamic login/logout button.
Thanks to the developer, keep up the good work!