I'm guessing a bit here because I can't see exactly what's happening on your screen (obviously) but I wonder if Word is running in "full screen mode"? Check out this page for more information (going to the View menu and choosing "Exit Full Screen" should fix it).
I'm not sure why Word is always starting up on full screen mode, but I hope that helps.
This solved my problem thanks
But it also exposed an underlying issue that the culprit is not Word but Mountain Lion itself!
The way to turn off Full Screen us by goimg to the top right of the screen to find an expand/contract icon (pair of arrows) That does the trick. Somethin that is commmon in web applications to expand an image.
Hope this is a permanent solution!