Have you tried rotating the envelope (inserting it 180 degrees rotated from
the way you're doing it now)?
You might also check in Tools | Letters and Mailings | Envelopes and Labels
| Envelope Options | Printing Options to see how Word thinks you're
inserting the envelope. It might be a simple matter of changing this.
Interestingly, the feed position shown for labels in my version of Word 2003
is not what I actually use (or that my printer requires), but then I don't
print envelopes from the Envelopes dialog, either.