I've run into the same problem: Word 2007 not being able to open Pocket Word
Documents (*.psw).

A work-around solution when using the mobile device is to open the Pocket
Word *.psw files and saving them as "Word 97/2000 Document (*.doc)" files -
NOT as Pocket Word Documents (*.psw). This works fine: Word 2007 opens them.

There's two problems I see with the work-around: (a) having to open ALL your
Pocket Word files to re-save them one-by-one under this *.doc format and, (b)
the memory required for the pocket *.doc files increases (may more than
double).

Along those lines, might as well create a file in the mobile device with the
"Word 97/2000 Template (*.dot) format, then create a shortcut to that file
and use that, so that every time we create a new pocket word document it'll
hopefully automatically save that file as a pocket *.doc file (and not as a
*.psw). I just thought of this but haven't tried it.

AND I AGREE: it shouldn't be too much to ask or too hard for Microsoft to
come up with a simpler solution - like offering a converter that works.

All previous Word versions (using Windows XP) used to work fine - then
again, this could also be a Vista problem, which may not be good.

Hope this helps!