FWIW, I ran into this problem this afternoon, and it took a while to troubleshoot. Mouse would work in all other 2007 Programs, but would not highlight text in Word. Drove me crazy for a while, found some on the web with the issue.
According to this Support Bulletin describes Deleting the Word Data registry key - Most of the frequently used options in Word are stored in the Word Data registry key. A common troubleshooting step is to delete the Word Data registry key. The next time that you start Word, Word rebuilds the Word Data registry key by using the default settings.
It worked! Just wanted to possibly save someone some trouble if they run into this!