HP Teacher Experience Exchange has a short video tutorial on how to embed YouTube videos into Microsoft Office 2010 documents.
That tutorial got me searching for others on the same topic on YouTube. Here's a good one I found for embedding videos into Word 2007.
Applications for Education
While I still think it is far easier to embed a video into a Google Documents document than to embed them into Microsoft documents, I realize that many schools have a strong affinity for Microsoft. If you're in one of those schools, using the tutorials I listed above could be a good way to have students create multimedia documents to demonstrate what they have researched and learned about a topic.
H/T to Josh Allen for the first tutorial.