VMWare works great for interactive applications like a word processor. Get the free trial, it's very easy to use. Microsoft Virtual PC 2004 is about as good (a little less tweakable) but works better than VMWare if you have less than 768 MB of RAM since it gives more of your RAM to the virtual / emulated PC.
Both are painfully slow for what we wanted though, running a virtual W2K server and the WebCT course management system on top of apache webserver.