The file size shrinkage is a big red flag but the error message gives you some hope that content can be recovered.

A simple way to attempt recovery is to use OpenOffice to open and convert the file. This is far more fault tolerant than Word appears to be with its own files.

If that doesn't work, can you change the file extension to .zip and see if the file can be examined by a zip file editor? If so, a manual recovery process can give good results. There are a few genuine 'knights in shining armour' who have the skills to resurrect files from the ashes but you would need to post your doc here to give them a chance to perform the necessary manual steps.

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Andrew Lockton
Chrysalis Design, Melbourne Australia