I experienced the same exact issue: I was using Word 2011, editing a document with a time machine drive plugged in, I inserted a picture file that must have pushed it over the file size that triggers this, and then I suddenly had all of the same symptoms described here.
I tried running disk utility after booting with command-R, which still doesn't fix the problem (says to restore from backup). I read that it requires booting from another drive to actually repair those hard link issues, which I unfortunately read after I already started the restore, so I have not confirmed this, but others might want to try that (boot from an external drive, maybe the backup drive itself, and run disk utility from there as opposed to the drive with the problem).
Assuming the restore actually works, I will have lost almost an entire day of work plus having to deal with this. My future solution will be to dump Microsoft and switch to openoffice, libreoffice, and pages. Of course, not all the blame belongs with microsoft (and maybe the issue was more the fault of time machine?) -- in any case an OS should not allow a single application to nuke an entire volume. Disk utility should also have been able to fix this, even if the document couldn't be recovered.
Here's an idea (that Apple will probably never hear or care about, but for what it's worth) -- why not make Disk Utility able to search the Time Machine backups so that if it encounters an error it can't fix, compare it to backups and only send the changes necessary to fix the part of the file system that's broken. This would not only save hours of the user's time waiting for a full restore, but it would mean that anything that is not corrupt that wasn't already backed up would still be there. This is about the fourth time I have run into errors that Disk Utility couldn't fix, so it seems like little development is going into one of the single most important tools an OS can even have.😮