Simple, Suzanne. A sentence will always begin with a capital letter and be
preceded by a space. Therefore, I would expect the grammar checker to flag up
an error when it found a capital letter in the middle of what, ostensibly, is
one complete sentence.
Word '97 used to pick up these errors for me so, it can work.
Actually, while formulating this reply, I see a glimmer of light. Perhaps I
have told Word to allow isolated capital letters. I will now check this out.