Why does logging out close all open apps?

Because your computer is actually doing what you ask it do to: logging out.

To get what you want to get: activate Fast User Switching (look for it in Sys Prefs). Go to the FUS menu in the menubar (up right) and select "Login window".

Yes, as the prev. poster said, use fast user switching if you don't want apps to close. But consider this: if you wanted to hack a computer, you'd start processes under one user that persisted even after a logout -- eg. a keylogger that phoned home after the user logs out. Actually, logging out with the GUI doesn't stop all processes. It stops the obvious ones, but if you are serious about your computer security, you write yourself a logout hook that forces all running processes to quit. The University of Utah posted such a script, but I can't find it right now... look up OS X security if you're interested.

Is there some setting to prevent this from happening?

No.

I suppose I can just put the computer to sleep if I
just want to lock the computer, but there are
instances where logging out and back in are
preferrable and its a real pain to lose open apps.

Describe one, please. If your concern is that some random third-party can access the machine, then it should be requiring a password when woken from sleep.

Perhaps this is just my PC experience with logging
behavior casting a shadow, but it does seem contrary
to what I would expect.

"PC experience?" Please describe a circumstance on a PC under Windows whereby you can log off, and applications yet not close?

I'm not shutting down the
compuer, so why are all the apps closing?

Why wouldn't they? You're logging off. Your user context is going away.

Any ideas?

Not broken. Behavior is by design in both Windows and MacOS.

You don't reallly need to put your system to sleep. Just start your screen saver (and require a password on the screen saver).

I'm certainly not a Windows wiz but I don't see how using it's "lock computer" function would help with your installer logout/login problem.

If an installer requires a logout/login I would suspect it's because some installed component can not be activated properly or will not be recognized until the current user logs out and back in. In some cases this may be a "lazy" way for the installer writer to ensure that some user process gets quit and restarted (for example to force an app to rescan it's plug-ins folder for new plug-ins or something like that). In other cases it may be the only way to accomplish whatever the installer is trying to do.

It may be possible to use FUS to switch to a second account, run the installers from there, then log out of that a account and return to the first account where Photoshop was left running... That may get you through the installation process but you may still be in a situation where the component is not activated/recognized by the first account.

If this is a big problem for you then you might want to consider contacting the folks who are creating these installers and questioning why they require the logout/login and if there's an alternate way of performing the install.

Steve