Try creating the new style when the style in use is at a lower level. For example, apply the normal style to your paragraph and then attempt to create a new style.

If you attempt to create a new style, Word assumes it is to be based on the style currently being used. If that one is already 10 levels deep, you will not even get to the dialog to change the based-on style.

Understanding Styles in Microsoft Word
http://www.addbalance.com/usersguide...oo_Many_Styles (new section based on this thread)