If you have $logdir=/XXX in your logwatch.conf then it will instead try to access /xxx. Currently the only way to access logs in a directory that contains capital letters seems to be creating a symlink with only lowercase letters. EG "ln -s /XXX /xxx".
Putting on the proposed list.
This request was evaluated by Red Hat Product Management for inclusion in a Red Hat Enterprise Linux maintenance release. Product Management has requested further review of this request by Red Hat Engineering, for potential inclusion in a Red Hat Enterprise Linux Update release for currently deployed products. This request is not yet committed for inclusion in an Update release.
An advisory has been issued which should help the problem described in this bug report. This report is therefore being closed with a resolution of ERRATA. For more information on therefore solution and/or where to find the updated files, please follow the link below. You may reopen this bug report if the solution does not work for you. http://rhn.redhat.com/errata/RHBA-2008-0750.html