In past versions, Outlook actually used two rendering engines – IE’s for reading content, and Word for editing when you were composing messages. What this meant was that if you were replying or forwarding HTML emails, previous versions of Outlook would first use IE’s rendering engine to view it, then would have to switch over to the compose engine (Word).

This wasn’t an ideal experience for customers, as the content people created often looked different to the recipient receiving it – like the formatting would be slightly off, or things wouldn’t appear as they had when the message was in “compose” mode. Added to that, one of the big things we heard in designing Outlook 2007 was that our customers wanted the rich editing tools they were used to from Word. As great as IE7 is, it was never designed to be an editing tool for text.

On their end, the Word team had been making advancements of their own in how Word 2007 handled HTML content, based on HTML and CSS standards. So we made the decision to unify the rendering and editing engine in Outlook by using Word’s engine.

While there are some HTML and CSS attributes that aren’t currently supported by Word’s rendering engine, the capabilities that our customers most wanted for their HTML newsletters are supported by Outlook 2007.

See msdn2.microsoft.com/en-us/library/aa338200.aspx and msdn2.microsoft.com/en-us/library/aa338201.aspx for more details on what HMTL and CSS standards are and aren’t supported. 

Another great reference is this whitepaper describing the new Word integration into Outlook: http://office.microsoft.com/en-us/outlook/HA102109301033.aspx.