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However, the lack of downward compatibility was fixed in Office XP, IIRC. I don't know if that trend continues with Office 2007.


Office 2007 defaults to saving to a new XML based format, .docx for Word and newer extensions for the others. It is a zip file with all the XML bits inside, and is completely incompatible with older versions of Office. It can save to a compatible format though, and Microsoft is slowly rolling out converters as well for both Windows and OS X.