In the past few days I have seen number of issues reported to us by our customers where they are unable to complete the email mail merge process on Windows 7 machines. As more an more users are going to upgrade to Windows 7, I thought I should put this blog post. This issue is a known issue and the solution for the issue is provided in the following KB. We have hotfix available for this issue. Please click the link below and from within the KB article you can request the hotfix.
980681 Mail merge in Microsoft Word does not work on a computer that is running Windows 7 or Windows Server 2008 R2
Hope this helps!!!