This was the error I had when I had installed Office 2007
Word also had this error :
"Word could not create the work file. Check the TEMP environment variable"
After a while of searching and cursing, I've finally found the solution!
First I've took a look at the environment variables, but they pointed to the right directory -> %USERPROFILE%\Local Settings\Temp a lot of sites suggested that that was the problem, but the path was/is valid when I typed it in the explorer.
After a lot of configuration swimming I encountered that outlook also uses registry keys, more specificly these:
HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\User Shell Folders
The 'cache' key of both registry entries.
When opening regedit, I saw that the 'User Shell Folders' key was pointing to a k: drive (which I didn't have): k:\Local\Microsoft\Windows\Temporary Internet Files
The 'Shell Folders' was pointing to C:\Users\Whizzo\AppData\Local\Microsoft\Windows\Temporary Internet Files
So I've changed the k drive to my user profile's temp folder:
And BAM, the problem was solved!!
I hope this is helpfull for someone ;)