Hi Chip,

interesting.

The following should remove highlighting
from an highlighited range of text,
if the cursor is the insertion point
and within the range.

If the cursor is extended, it will
reduce surrounding highlighting to the selection.

Sub SetHighlight()
Dim rTmp As Range
Set rTmp = Selection.Range
Selection.Range.HighlightColorIndex = wdYellow
With rTmp.Characters
  While .First.Previous.HighlightColorIndex <> wdNoHighlight
     .First.Previous.HighlightColorIndex = wdNoHighlight
      rTmp.Start = rTmp.Start - 1
  Wend
  While .Last.Next.HighlightColorIndex <> wdNoHighlight
     .Last.Next.HighlightColorIndex = wdNoHighlight
  rTmp.End = rTmp.End + 1
  Wend
End With
End Sub

But it is slow.

And there is:
"Tools, Options, Edit,
When selecting, automatically select entire word",
which should be unchecked.

One could speed it up a lot, if your docs are large
and your users are, so to speak, not compliant,
by checking whether the selection is "inrange"
with a highlighted range it touches.

But, IMHO, thats overdoing it.

Chip,
Another thing you could do is add two macros to the user's contextual menu.
Also called shortcut menu for Text, when right clicking in a main text body,
using the Tools/Customize menu. When adding macros to menu lists, you can
name the menuitem text whatever you want and create shortcut key
combinations to activate macros.
One right click menu item macro would be added for highlighting selected
text and another would be added to remove the highlighting from selected
text. (Also remind user of the Undo and Redo buttons) Editing should be
swift even on your pre-suggested highlighted text and you can still use the
discontinuous selection method for editing/(un)highlighting selections.