Hi, Phil,
I see what you're talking about here:
http://office.microsoft.com/en-001/w...010148333.aspx
I know that when my laptop was stolen, I found out that anyone could just connect to my computer as a secondary hard drive and they would have access to all my files. Sh*t. However, I was told that if I had encrypted my hard drive, it would be safe.
I've Googled "forgot the password to my Word/PowerPoint file" and see lots of pages coming up about password recovery. My conclusion: Go with encryption.