I would like to overlay the header image with the logo, so the two are combined. I can then claw back a bit of screen real-estate as with logo and header separate, they take up a lot of vertical room.

Can it be done?

My test site is here:
http://www.rowyerboat.com/stmichaels...own/wordpress/

Many thanks,
Steve

Yes you can and there is a how to in the gold forums tutorial section that explains how to do it
Note, you need to have donated at least $20 to have access to the gold forums