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It's really a huge project if you really want to make an applet that can read a Microsoft Word document from the client machine and then display it.
We were involved in developing a bean that will read a Microsoft word document and then display it in the Java application.
To really get it done you need to know the new JDK1.2 security policy, trusted applets, digital signaturing the applet, the policy tool which defines the policy for the perticular codebase i.e. the scope of applet to access the client resources. Like reading the file (in your case Microsoft Word document).
Other areas to explorer: how Microsoft Word stores the text internally. What are the tags it uses for bold, italics, font size and other attributes that a general document in Microsoft Word has. So it will be an interperter in itself.
The following was submitted by Jennifer Hogan
This is how to create an instance of Microsoft Word using JavaScript.
<script language="javascript">
var objWord = new ActiveXObject("Word.Application")
objWord.visible = true
</script>