Over a 13-month period, the Schome Park Programme operated the first "closed" (i.e. protected) Teen Second Life project in Europe. The project organised diverse educational events that centred on use of a virtual world and an associated asynchronous forum and wiki. Students and staff together exploited the affordances of the environment to develop skills and enhance community spirit. One popular activity, initiated by students, involved sailing boats around the project's virtual island, a technically challenging task for beginners. This paper studies the records of one of these sailing regattas. Organising and implementing this event involved considerable technical and interactional challenges. We analyse the following: How do people work together, including through the use of (virtual) artefacts, to solve problems? What particular qualities of the literacy practices surrounding the regatta appear to us to involve learning? Simultaneously, we contribute to the development of methodologies for studying learning in virtual worlds by employing a virtual literacy ethnography. Findings include a diversity of creative approaches that are used when solving problems, the significance of adult behaviour in authentically modelling learning and the value of humour in fostering a learning community. The notion of distributed cognition has implications for characterising learning and analytical approaches to analysis. (Contains 5 figures and 4 notes.)