Thanks for the interest. Greatly appreciated.
Answers:
1. Having just done the research, Terry Farrell is a guy from "Microsoft Word Most Valuable Professionals" whose names appear all over the place on MS Word questions
(www.word.mvps.org.)
I picked his name up from a Q and A which goes back a few years where he was saying this was a known problem and was fixed in MS Word SP1, but it isn't fixed in my case. I might send a note to him as well, now I know more about who he is.
2. It's a .jpg extension taken in JPEG+Fine mode on the camera.
3. In all cases the image has been imported to the hard disk via Photoshop Album Starter Edition 3 and either transferred into Word directly from "My Pictures" (i.e. not from Photoshop) using the "insert" command, or cut and pasted from My Pictures to the MS Word document. The image won't open in MS Word when it's imported from Photoshop either, but I suspect this is simply because its a library lookup table, not a separate path.
Images taken on Canon cameras open successfully.
Thanks.