Before I spent much time working on this, I would use Windows Update and be sure that I had installed all optional patches for Microsoft Office. It may be a bug that was fixed by a patch.
Microsoft Exchange is not something that you would run on your personal end user computer - it is not a replacement for outlook or Thunderbird. It is what is technically called a "mail transfer agent" or MTA, while what you run on your own computer to sort and read your mail, Outlook, Eudora or Thunderbird, is called a "Mail User Agent" or MUA. Your MUA attaches to a pop/imap server (or one part of Exchange), which receives its mail from a MTA, such as Qmail, postfix, sendmail or, if Exchange, another part of Exchange.
So the message can't be telling you to install Exchange on your system. It might be telling you to configure your e-mail so that Office knows what it is...and this might be the language that Office uses to tell you to do this, by referencing the Microsoft e-mail product.
All it may really mean is that you have to run outlook, and tell it that you are using this address book (import your old one, hope it is still there) and then once Outlook knows about the address book, it will then tell the rest of office about it (by creating the right registry entries) so that other programs can find the address book.
Now, as with most Microsoft products, they integrate to a very high level, so as to create interdependencies. I believe that the reference to Exchange (I wish you had quoted the exact message) is that somehow the address book from outlook has to be prepared to be used with Word by being converted into exchange format - I found a reference to converting multiple different format address books into exchange format. But it may not matter, or that process may be transparent, so long as Microsoft Outlook knows about your address book.
http://office.microsoft.com/en-us/help/HA011309901033.aspx is a microsoft page which deals with the conversion of addresses so as to create an envelope in Office 2003. It looks like (according to these instructions) you start from outlook and then create a new document which you edit in word. This seems odd - especially if you are writing a letter and then decide to make an envelope.
Yes, I think this is odd myself. I happen to have office 2007 installed and you write a letter in word, switch to the envelope composing popup window once you find it with thie new complicated menu system without apparently leaving word, and you can select from your outlook contacts or some other contact list, and it uses the address to fill in the envelope automatically.
The second reference I gave you was another microsoft page that talks about doing a mail merge by selecting from outlook contacts. Maybe if you follow this procedure it will somehow let Outlook know about its contact list and then the rest of Office will know.
These are a couple of suggestions. I hope that they help. If they don't, try asking another question with the exact text of the error message and after explaining in some detail how you got to the error message.
