I've finally figured out a way to comprehensively fix this problem, though it took a lot of work and the creation of an Outlook 2010 addin! See below for the addin download. As far as I'm aware, though, there is no way to deal with this problem unless you install an addin to do it, because this is essentially caused by a bug in Microsoft Word's conversion of documents to HTML (which needs to happen before you send an Outlook HTML e-mail).
See down below for the original description of the problem (Outlook 2007, 2010, etc. not allowing proper inline responses because you can't break the blue "quote line" on the left).
My addin basically intercepts the e-mail before it is sent, grabs the Word document (if the e-mail format is to be HTML), and fixes the Word document's XML, before saving it as HTML and setting the e-mail's HTML body to the 'fixed' HTML. Then, finally, inline responding works. :-) It can be done by going to where you want to break the blue line, pressing Ctrl+Q, and entering the inline response. Without my addin installed, the blue quoteline will be reinstated in front of the inline response when you send the e-mail.
Here's a screenshot to show what inline responses look like in Outlook 2010 once the fix is applied (yeah, it's messy because I was comprehensively testing it; all the stuff here is exactly what the (top of the) e-mail looked like before I hit 'Send'):
I have uploaded the source code of the addin that I had got round to developing when I originally posted this answer; I haven't had the time (or a copy of Outlook 2010 for that matter) to develop it further, so here's the disclaimer: this will probably not work at first because I can't remember where I was in developing it, but I know I got it to a proof of concept. I'm releasing this code under the GPLv3 so if someone with some development experience wants to try and get it working nicely with Outlook 2010, please do so and contribute your solution back (licensed under GPLv3) linked in a comment on this answer. However, I probably won't personally ever get round to making this a "finished" solution. The code is just to show you roughly how I did it. The addin is implemented in a Visual Studio 2010 solution, so you'll probably want to use that. Here's the download:
ORIGINAL DESCRIPTION OF THE PROBLEM:
This has to be the most infuriating regression from Outlook 2003 to 2007. It also exists the same in Outlook 2010, as far as I can tell.
When you reply to an HTML e-mail message in Outlook, the quoted text has a blue line down the side, and is usually at the bottom of the message:
Now in Outlook 2003, when replying to HTML-formatted messages in Outlook, you used to be able to reply inline quite easily, by getting to the point in the quoted message you wanted to reply to, and pressing the 'decrease indent' button:
Since Outlook 2007 (and 2010), they replaced the e-mail editor with Microsoft Word. This means the blue line is implemented in a different way; it uses a blue left border. This makes it tougher to break the line up. After much ado, I found a couple of pages that said that you could remove all formatting by pressing Ctrl+Q, which would remove the blue line next to the cursor and allow inline replies:
OK, not too bad on the face of it. I can live with that. But here's the kick in the teeth; try sending that mail. I'll send it to myself. What do I receive? This:
Outlook 2010 reinstated the blue line, where I had removed it, upon my sending the e-mail! For God's sake! The two pages I linked to above don't seem to address Outlook's reinstating of the blue line upon sending.
So, does anyone know how you can actually reply inline in Outlook 2010 (or Outlook 2007) e-mail without the blue line being reinstated? Before anyone says, I do not want to convert the message to plaintext, and I do not want to just indent replies and have to manually build the blue line myself. I want something like the Outlook 2003 behaviour; I reply, Outlook creates the blue line, and I can break it up with inline replies, send it, and my inline formatting stays.