. Your problem lies in the fact that the 'o' you are trying to give an effect is two separate paths, probably in a group. Effects like offset will not work properly, indeed. You will want to select all the o's paths and then make them into a `Compund Path`: <kbd>Object > Compound Path > Make</kbd> or <kbd>right click > Make Compound Path</kbd>.

Besides, this effect is more easily achievable using the `Appearance` panel:

 1. Type your text. If you want part of the letters to have the effect, type them as a separate object;
 2. Be sure the object is selected;
 3. Open the `Apperance` panel, <kbd>Window > Appearance</kbd> or <kbd>Shift</kbd>+<kbd>F6</kbd>;
 4. In the panel, select the `characters` object and choose <kbd>Add New Fill</kbd>, either through the panel options or the filled square icon in the lower right: <br />![add new fill button in Illustrator CS6][1]
 5. With that fill selected, give it a different colour and choose <kbd>Effect > Path > Offset Path</kbd>. Use `Preview` to fiddle with the offset value;
 6. In the `Appearance` panel, drag the new fill below the `characters`. The Appearance panel works just like a layers panel.
 7. Repeat with different colours and different offset values to create a multi-stroke effect.

Be sure during the whole process that your object stays selected, or it will not pick up the changes you make in the Appearance panel.

  [1]: https://i.sstatic.net/g6dWx.gif