I am having a similar issue. I was running Office 2007 fine then this morning I installed Visio 2003. It wonked my whole MS setup. All of my office link icons are now windows default, indicating that the "Start in Directory" has been lost. When I try to repair my Office install, hoping to rewrite the registry entries, whether from the Control Panel or the disk I get the same error.
Hopefully someone has seen this problem and will respond. i will keep provide any update I come up with.