Running Office XP on Windows XP with SP2.

I have tried unseccessfully to take the Outlook Contacts
listing and use it as a source for mailing labels.  I
opened Word and used the Mail Merge Wizard.  After
opening a blank document and selecting Avery 5260 mailing
labels, I then selected Outlook Contacts as the source.  
After clicking on "Choose Contacts Folder" the following
message appears:

"Either there is no default mail client or current mail
client cannot fulfil the message request.  Please run
Outlook and set it as defalut mail client."

Since Outlook Express is my default mail client, I did as
instructed but it did not resolve the problem.

Does anyone have any suggestions?