Rhino,
I found the answer on the apple discussions site. A user there found the bug that stops office from launching, and I was able to verify it on my machine as well. Here is the answer, thanks to zaxcom on the apple discussion board.
snip
Office will crash on open if you have selected any Drive as a Classic boot drive in the Classic Preference panel. I confirmed this many times. As long as you do not choose any OS 9.x folder as the one to open under classic, Office will open. The moment that you choose a 9.x folder in the preference panel Office will not launch. This is a strange bug, and of course it means you cant run classsic. Or when you are done running a classic app, you can unmount the drive with 9.x on it and Office will start up again. Its a bit of a work around and maybe someone can find the reason that Office evens cares that you have a drive selected in the Classic Preference Panel.
/snip
I unmounted the partition that has 9.0.2 on it, and I was able to launch office for the first time. It's a pain in the butt, but it works.