Outlook 2007 cannot communicate directly with Word 2003 - at least not if
you start from Outlook. Starting from Word it should work, but you don't
have access to all the Outlook fields. The only way to get all the fields
would be to start the process from Outlook 2007 and create a permanent data
file.

Then cancel the process, open Word 2003, open the data file you have created
(a comma delimted document) then save it as a plain text file. Or add an 'x'
to the filename extension of the doc file (actually an XLM docx file)
produced by Outlook - thus filename.docx, so that Word 2003 (with the
addition of the Office 2007 compatibility pack) knows how to recognize the
file correctly. Word 2003 merge can use either as a data source.

See http://www.gmayor.com/mail_merge_labels_with_word_xp.htm  and
http://www.gmayor.com/mailmerge_from_outlook.htm