It appears to work (with Word 2003 at least) if you open the document in
Word first. Then attach the data file.

Use the merge toolbar -
http://www.gmayor.com/mail_merge_labels_with_word_xp.htm  to do this.
If you are merging from Outlook
http://www.gmayor.com/mailmerge_from_outlook.htm then if the process hangs
when you select the file, switch back to Word to select the html converter.
Then return to Outlook to complete the process.

I seem to recall that html e-mail merges were not available in some versions
of Word, but I can't remember when the facility was introduced. It may be
that you need Office 2003 to do this, though I am heartened by the fact that
you can do so if you create the document from scratch.

I don't use Word as my Outlook editor but I suspect when you do, the
signatures are in autotext. If not you can make them thus.

Do note that all this is probably a complete waste of time as you have no
control over how the messages are viewed. Many users, myself included, have
their e-mail viewers set to view only plain text. You may be better sending
your formatted document as an attachment and the message itself in plain
text. See the article prepared by fellow MVP Doug Robbins at
http://word.mvps.org/FAQs/MailMerge/MergeWithAttachments.htm