Yes, office is running SP1 and looks to be up to date. When I did the uninstall/reinstall I looked for and loaded all updates.
I haven't installed any other programs recently, nor has my wife. I have another computer in the house that I installed Windows 7 and Office at exactly the same time as I installed them on this computere. I used the 3-license packs for both programs. That computer is running SP1 for both the OS and Office and everything works fine.
Not sure what pop-up prompt in Office you were referring to, but when I did the re-istall, I did use alll "recommended" settings.