I warmly second the wise words from Charles and Stefan!

Comment on Insert > Object: Word 2010 for Dummies suggests Insert > Text > Object > Text from file. I don't know whether this is the same as the 2003 Insert > Object you mention, or a refinement 2003 doesn't offer.

I would venture to question your requirement to maintain the sub-document's own numbering when yoiu insert it into a main document. Sounds to me as the though the hapless reader is going to be confronted with two unrelated numbering systems and (worst case) duplicate numbers. If it's going to be that separate, why struggle with "master document"?

When I reuse chapters in my documents (not in Word, so not with the "master document" feature) I set them to continue numbering from their context: so a standard chapter on Safety that might be chapter 4 in one book becomes chapter 6 in another. This has no impact on the Safety chapter, which I can edit as often as I want, and does not break numbering in the book.