My roommate just had this problem with Microsoft Word 2003, and I found the fix using the Google search engine. Here’s what you do:
Tools -> Options -> Edit
Check “Typing Replaces Selection”
That’s all my roommate had to do. For the sake of completeness, the fix also says:
Tools -> Options -> General
Uncheck both options that have WordPerfect in them
Hope this helps someone.

Thanks for the fix!
Thank you so, so much. I thought that maybe it had always been that way >.< maybe I was just forgetting…
i started to feel very small and insignificant
but now…I DONT HAVE AMNESIA!! IT DOES WORK!!!
I am wondering why/how this option decided to uncheck itself… Thank you for this entry. Life is so fustrating without backspace!
hahaha, i dealt with this problem for 3 months. I was about uninstall and reinstall Office cause of this. Thanks a bunch
hahaha, i dealt with this problem for 3 months. I was about uninstall and reinstall Office cause of this. Thanks a bunch