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Hi, Chris,

The template parser works through your templates in a set order, and different types of tags/conditionals are parsed in different orders.  That sounds confusing, but it becomes more habitual as you use ExpressionEngine. 

Just as a note, using {if:else} makes it an advance conditionals.  This means that the items inside the conditionals will run THEN the conditionals run.  This can end up being somewhat hefty for processing.

If you do this instead:

{if logged_in}
  {exp:channel:entries channel="letters" dynamic="yes" status="no_reply|Open|Draft" disable="pagination|categories|member_data" limit="1"}
...Everything in-between…
 {/exp:channel:entries}
{/if}

{if logged_out}
    {exp:channel:entries channel="letters" dynamic="yes" status="no_reply|Open" disable="pagination|categories|member_data" limit="1"}
...Everything in-between…
 {/exp:channel:entries}
{/if}
{/if}

Then the conditionals will run first, and only one set of entries tags will run.