As far as I know, this is in essence because Word 97 can only generate
either
a. a plain text e-mail (with no hypertext of any kind). What happens to
links in this case would typically depend on the e-mail client that receives
and displays the e-mail. Or
b. a message with no body text and the Word document in an attachment.

With Word, you probably need version 2002/2003 (with the same version of
Outlook) to improve on (a).
The only suggestion I can make is that if your hyperlinks are to internet
URLs it may help the recipient e-mail package if you spell out the full link
including protocol, e.g.

prepend

http://

mailto:

as appropriate