Do not underestimate the power of Word... I admit that it is a pain in the ass in the beginning, but once you get the hang of it you can do wonders with it.
My experience does not cover 2007, but with 2003 I did some really big stuff (like laying out a scientific book). While I would always prefer a DTP package (which then I used normally), I would certainly stick with Word than learn a new system (like laTEX) from scratch.
Some notes: be very disciplined while using styles. Try to use manual formatting only for "local" (i.e. inline) formatting. Whenever some properties are to be shared among several passages, paragraphs etc., use styles (even for text formatting). This will save you a lot of headaches later.
I am not sure I get the question about styles based on paragraphs. In 2003 when you select "New Style", you will see several things:
- the style it is supposed to be based on
- the manual overrides that were made to that paragraph (if it is a paragraph style).
For example, I select a Normal paragraph, make it a bullet and change the font to Arial 12 (Normal is Times New Roman 10). Then I use "New Style" and I see in the dialog:
- style based on Normal (this can be changed)
- description of the styling i.e. : Normal + bullet list + Font Arial 12.
That's what my new style would be - all properties of Normal plus the two changes.
But what if I don't want the font change reflected in the style, just the bullets?
In the dialog select "Formatting" and change it to the font that was default for the base style, i.e. Times New Roman 10. You will see that the style description is now:
- Normal + bullet list
Similarly, if I want to add some more formatting to the style, I just use the dialog to manipulate the properties. This is very powerful, I suggest you at least go over the options to see what can be assigned at the paragraph level.
Make sure that once you have the style, you modify it manually and not update it based on the paragraph you are in - you never know what might go in there (i.e. how it differs from the style it is based on).
As whether to format on the go or to write plain text and format later, this is a matter of personal preference. I did the latter, but mostly because I worked with content provided by other authors - if I wrote the stuff from scratch, I would style it immediately.
Finally, I would go with a single file, unless the document is very large or contains many heavy graphics (but I suppose today's computers can handle that, too - mine is yesterday's...).
Edit: *big facepalm* I did not read the second page of the thread - most of my suggestions were mentioned earlier... Sorry about that!