My brand-new install of Word 2007, which had been working just fine, suddenly refused to save any files. I'd hit Ctrl-S, and it wouldn't complain but it wasn't saving. Then upon exiting, Word would ask if I wanted to save. I'd click on Yes, and the same pop-up would appear, endlessly, until I chose Cancel. Also, on opening files, Word gave an error message about not being able to access a TEMP file. Exact wording: "word could not create the work file - check the temp environment variable".
A look at the folder C:\Users\MyUserName\AppData\Local\Microsoft\Office (where of course MyUserName is my user name), showed that the folder was encrypted.
I decrypted it, and -- bingo! -- Word worked perfectly again. This was on a 3-year-old laptop with a fresh disk re-image (OS=Win7) from the helpdesk at work. Weirdly, that folder is encrypted on my desktop at work, and everything works fine there.