According to SitePoint, Microsoft Breaks HTML Email Rendering in Outlook 2007:
That’s right. Instead of taking advantage of Internet Explorer 7, Outlook 2007 uses the very limited support for HTML and CSS that is built into Word 2007 to display HTML email messages.
Egads! This will be quite a boon for newsletter designers, once they figure out what will work in Word 2007. It will be a horrible pain for the rest of the world. Given Word’s atrocious history of HTML mark-up, I shudder to think what hoops designers will have to employ to get decent rendering.
Perhaps my traditionalist preference for plaintext will come back into vogue.
(Spotted via Simon Willison.)
C. David Gammel, CAE 
David, those of us at my company who work with nonprofits on creating emails were initially disgusted by this. But after talking about it, we realized that we should approach this as an opportunity to encourage our clients to adopt solid email layouts that are less image and layout dependent. The basic tenant of a good email message still holds: develop rich content targeted to your audience, use advanced layout and images sparingly to accent your message – your message should not depend on either.
And something else to consider is that while 75-80% of the corporate market uses Outlook, many if not most of those users are blocking images by default (same is true for gmail and other online email readers). A more reliable approach is to design an email message with graceful degradation and well written teasers that links to a “pretty” version online. This will improve delivery rates and becomes more important as we move into a mobile email environment.
So, while the good folks at Microsoft make changes that are challenging from a design perspective, they don’t alter the essence of a high-quality email message.
Thanks for commenting, Chris. I agree with your design sensibilities for e-mail messages. Still, Word 2007 is several steps back as far as having support for web standards, which will require designers having to continue to develop work-arounds. It’s a decision that will make challenges for millions of web workers. Not end of the world but a very poor decision on Microsoft’s part.