I'm running a Home and Student Edition of Office 2008. I did a custom install and installed everything except Entourage.
I've checked my normal template (renamed and recreated upon restart) and no change. However, I have noticed that the Language menu item is only greyed out when I'm in publishing layout view. I've only just noticed because I've only used that view (that's why I upgraded). So, I suppose it could be a restriction of this view (if I switch view it enables the menu item, but when I switch back again, it's disabled once more).
Thanks for your help. Since I have a workaround now, it's not a problem, just an oddity.