I would be interested to see if this is something that is configuration or other

I think, this issue is due to absence of  "End(); " in Login.ascx.cs (see the source of LiveID_01.00.00 on sf)

....
case "clearcookie":
                            /* This action is called when the user tries to log-out.  */
                            // insert your clear cookie logic here */
                            // after cookies are cleared, you must reply to Windows Live ID server
                            // Confirm successful sign out by sending an http response.
                            loginCookie.Expires = ExpireCookie;
                            res.Cookies.Add(loginCookie);
                            string type;
                            byte[] content;
                            wll.GetClearCookieResponse(out type, out content);
                            res.ContentType = type;
                            res.OutputStream.Write(content, 0, content.Length);
                          res.End();   // <----------ADD THIIS MISSING LINE
                            break;
case "login":
.....

According to MS LiveID giude, "clearcookie" should return gif only. In my case, without  "res.End()", it returns HTML code.

After recompiling the "DotNetNuke.Authentication.LiveID.dll"  with this change, it returns a 42-byte gif only and logoff works properly.

Hope this helps.

Peter