I opened a new Word document in MS Word 2007 and started typing. I noticed that all defaults for paragraphs, fonts and generally formatting are gone.

So in order to reset all formatting to defaults you have to delete or rename a certain file.

In Vista, that file is in: C:\Users\[yourname]\AppData\Roaming\Microsoft\Templates

in that folder delete or rename file normal.dotm

If you want to reset all settings to factory defaults you have to delete a registry key for MS Word. For each version of MS Word the registry key is slightly different and is as follows:

Word 2007

HKEY_CURRENT_USER\Software\Microsoft\Office\12.0\Word

Word 2003

HKEY_CURRENT_USER\Software\Microsoft\Office\11.0\Word

Word 2002

HKEY_CURRENT_USER\Software\Microsoft\Office\10.0\Word

Word 2000

HKEY_CURRENT_USER\Software\Microsoft\Office\9.0\Word

 you can read more at:

http://support.microsoft.com/kb/822005

Voila!