If I gained $200 on savings account interest for 2008, can I avoid paying tax on it by selling some stocks at a loss of $200?
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Yes, if you had no capital gains. However, if you also have taxable capital gains (from other stocks, mutual funds, real estate, etc.), then the loss would reduce the tax you paid on your capital gains. The loss would only reduce you tax on ordinary income if you did not have any capital gains (or if your capital gains were less than the loss). If you have no capital gains, you can avoid tax on up to $3000 of ordinary income per year or the amount of the capital loss, whichever is more. If you have more (or as much) in capital gains than in capital losses, you can avoid tax on capital gains up to the amount of the capital losses. If you have at least as much in capital losses than in capital gains, you can avoid tax on all the capital gains. If you have more in capital losses than in capital gains, you can avoid tax on all the capital gains and on ordinary income up to either $3000 per year or the amount by which the capital losses exceed the capital gains.
Also, if this $200 in interest is your only income, you would not owe any tax on the $200 anyway. Selling stocks for the tax loss only makes sense if you have enough other income to be taxed.
This is actually oversimplified. There are additional rules relating to carry-overs, wash sales, and distinguishing between long-term and short-term gains.
At the end of the year up to $3000 of net capital losses can be used against other income, so yes, $200 would work.