Disabling Word as the default editor only solves that specific issue. When Word is launched by itself it uses just as much memory, so I have to switch default word processor in all cases. Don't really want to do that.
I made some more tests and this is what I concluded:
When Word is launched, the memory usage is about 90MB. However, when I minimize it, Word goes down to normal level and actually stays there even if I maximize it and use Word like before. When I did that, I opened Outlook while word was opened and lo and behold, no issues with word. I closed Word and it stayed on a normal level. However, Outlook now hogs the memory, so I did the same thing here: Minimize it and maximize it...and yes, it went down to normal levels.
I noticed this is the deal with every application. IE7 for an example is the same. Memory usage is around 50MB. When minimized and maximized, it went down to normal levels around 15MB.
To be required to do this is ridiculous, so now I am very curious how this an even occur and how to prevent the user to be forced to minimize their applications before they can use it properly without running the server into a halt.