As a workaround you can initiate the merge from Outlook by selecting your
Contacts folder or some contacts, and using the Outlook Tools->Mail Merge...
option. Read the options in dialog box carefully! Also
a. you get to use more of the data in the Contact this way than you do
using the other method
b. the field names you need to use in Word may be different from the ones
that you need when you do it the other way.
I don't know why the other method is not working in this case, but it does
rely on a relatively complicated set of software components to get the data
(it uses the Access/Jet OLE DB provider, and its special Outlook IISAM) and
may fall foul of various Outlook and/or Windows configuration and security
issues. For one thing, Outlook must be set up as the default program for
email (not (just?) for Contacts as you might expect) in Control
Panel->Internet options->Programs or IE->Tools->Internet Options->Programs,
or the Vista equivalent.
Peter Jamieson