Update: I managed to fix the problem while following arc98disc's suggestions. When I brought up msconfig.exe to set up a clean boot process, I discovered that "Selective Startup" was already selected. I don't know why it was set like that. Neverthless, I reset the selection to Normal Startup and rebooted the machine. Then I reinstalled SP1 and tested in Word. Operation was normal. So I reinstalled all of the other Windows updates that als needed to be installed since I removed SP1. I installed them 1 at a time and tested my issue after each update. All updates are in, all Office file operations are normal.
So I guess the fact that the computer was set on Selective Startup was disrupting Office's ability to access the file locations.
Anyway, thanks for the responses and thank you arc98disc for putting me in position to stumble on to a solution!