The security in Word 2003 can be enhanced by changing the cryptographic settings (In Options/Security/Advanced). The highest level seems to be:
RC4, Microsoft Strong Cryptographic Provider / 128-bit
This is substantially better than the basic protection provided by a ZIP file. It is also worth remembering that when you open a ZIP file a temporary copy is made - someone with the right tool can recover this, even after it is deleted. This isn't a problem for Word which allows you to edit encrypted documents on-the-fly.
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