David
This is a famous problem with well documented remedies.
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This is a real FAQ.
MacBU knows about it, but hasn't determined the cause. Please
1) Make a screen shot (CMD-SHIFT-3)
2) Send the screenshot and a copy of the file
~:Library:Preferences:Microsoft:com.microsoft.office.prefs.plist
(where ~ is your home directory) to je...@microsoft.com
You can then fix the problem using the technique shown here:
http://www.mcgimpsey.com/macoffice/office/formattingpalettegone.html