from the Word help file about the "Windows in Taskbar" option:
"Displays an icon on the Microsoft Windows taskbar for each open window in a Microsoft Office program. Clearing this check box places a single icon for each open program on the taskbar."
what it *really* controls:
1) number of Word icons on the taskbar (on - one, off - multiple)
2) how many Word windows are opened (on - one, off - multiple)
the help text doesnt really say it will only open one window (item 2 above), only that it will consolidate icons on the taskbar (item 1 above).
compare this behavior to Excel's and Powerpoint's. Whether or not the option is on, those pgms will only open *one* appl window. these are the kinds of inconsistencies that bug me about microsoft. choose one style!!!
regardless whether or not you turn the option on, you can still use Word's Window menu bar entry to bring the other doc/window to the front. you can also use Alt-tab and the taskbar.
with regards to desktop space, i use VERN or MS Virtual Desktop Manager to get more "desktops" and swap between them. to me, that's much easier than selecting icons on the taskbar or using alt-tab.
VERN - http://oneguycoding.com/vern/ also has a nice appl launcher (Blanch) similar to the Quick Launch area in the task bar. you can have it autohide so it doesnt take up screen or task bar space until you need it.
MS VDM - http://www.microsoft.com/windowsxp/downloads/powertoys/xppowertoys.mspx