I also want to add my recommendation for using Word to do the writing (it being a word processor, and all) and InDesign to do the layout.
Using InDesign rather than Word for layout is an informed decision on my part. In my "day job" I use Word and PowerPoint almost exclusively to produce finished products, and I would characterize the experience as having to fight a battle uphill all the way. I've developed some workarounds and tricks that make it easier, but it's still drudgery.
InDesign is far, far superior. And it's easy for me to use. I cut my teeth on PageMaker 4.2 on the Mac in the early 1990s, but I found "upgrading" to InDesign 2.0 on Windows in the early 2000s (I'm now using CS3) was practically seamless. All the products I've done for EN Publishing I did in InDesign; I feel like CS3 has all the features I need.