Hi
For your issue, I have tested in my machine.
However after I set password protection for a 2007 template, Word 2010 still need password to edit.
Here's a link for your reference to add protection to a template, follow the detailed steps:
http://office.microsoft.com/en-gb/word-help/add-protection-to-a-template-HA010030757.aspx
You might also start Word 2007 in safe mode, copy the contens to a new blank file to check the issue.
It is also recommended that you do a repair for your Office suites in
Control panel>Program and features>Office>Change>Repair
Best regards
Tylor Wang
TechNet Community Support
