The actual answer is this --
Type your words. Use a color other than black.
Select them.
Choose Expand/Outline/Inline from the Manipulate menu.
Set your thickness parameters (usually you will have NO OFFSET)
Now, cut the two different items (outline, and then the letters)
After weeding, you can tape the letters with clear transfer tape, peel 'em away from their backing paper and carefully place (lining them up) within the outline, squeegee the whole thing, and there you have it, a die-cut layered decal, all taped and ready for application.