The only time you get the revoke moderator privs is if they are not a moderator of any forums. So there is an extra step involved in this as you need to remove them from all forums and then you will get the revoke moderator privs link. This is something that I'll look at making easier as well when I do some more admin area restructuring.
Of course I may have mis-understood your question, and maybe you are saying this function isn't actually working. Let me know either way so I can check.
