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I want to remove the default sign out button and add a custom sign out in the master page. how to add a custom button in sharpeoint 2007?

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You can copy the Welcome.ascx and make the modifications necessary to remove the logout menu item. Then, open the Master Page and replace the reference to the original Welcome.ascx with your new one.

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remove this code from "welcome.ascx" user control from 12 hives.

<SharePoint:MenuItemTemplate runat="server" id="ID_Logout"
                 UseShortId="true" ClientOnClickNavigateUrl=""
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You should not directly modify the files in the 12 hive as that would put you on unsafe grounds with respect to support from Microsoft. – MBSurf Jun 24 '11 at 12:58

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