Unfortunately you can't use XML format data directly as a data source.
Believe me, I tried to get MS to support it several years ago, for exactly
the reason you quote.

Since the Excel approach isn't going to work, the only things I can suggest
are to
a. transform into an HTML table. The XSLT for that should be fairly
straightforward, but off the top of my head I cannot remember whether Word
imposes the same column count limit (around 63) as it does on its own
tables. Also, I do not know whether Word will accept the kind of text
volumes you mention using that format.
b. transform into a Word document containing a table in WordProcessingML
(i.e. Word 2003 WordProcessingML format). Harder, same limit on column
count, but it is more likely to work. If you are unfamiliar with
WordProcessingML then the first problem is to find out what XML you need to
output. The only way to do that IME is to create a Word table, save it as
XML, and start discarding stuff like font/style info. until you can no
longer open the .xml in Word. (I may have a good starting point for this but
it's a long time ago and would take some digging out. Before doing any of
that, I'd just check that you can use document in WordProcessingML format as
a data source.
c. (maybe) use ADO/ADOX to convert the data into .mdb format

This is really for opening WordProcessingML documents I think.