I don't know /exactly/ why, but...

When you connect to Outlook from the Mail Merge Wizard, Word uses what I
think is quite a tortuous method. It gets the data using OLEDB (a database
access method) via the Jet database engine provider. Jet is the database
engine that Access uses when it opens .mdb files, which is why I was asking
about Access. Jet can read/write .mdb files, but it can also get data from a
number of other sources using things called Installable ISAMs (IISAMs). One
of these IISAMs is an "Exchange/Outlook provider", and Word uses that to get
the data from Outlook. During that process, a Jet (.mdb type) database is
created, typically in your user Temp directory. The process also creates
SCHEMA.INI file that tells the IISAM which fields to get from Outlook and
what to call them inside the Jet database.

Although that's about as much as I know about this process, there are so
many components and steps involved that I don't find it in the least
surprising that it goes wrong rather easily. However, most people who have
trouble with this report a different error. The reason I asked about the
security database etc. is because when you try to open a .mdb directly as a
data source (forgetting about Outlook altogether for the moment), Word may
show the Datalink dialog boxes if the .mdb has been secured.

I'm not sure you wanted to know that but it's the nearest I can get to an
answer to your question :-)

--
Peter Jamieson - Word MVP