Office 97 install with XP

Sounds like a rights issue. Try logging in with a user with elevated rights and running Outlook for the first time, then login as the user and see if it runs.
You might have to elevate the user's local permissions temporarily if that doesn't work.
I think Office 97 is just too old and doesn't understand the security schema.

There is a problem with 97 on XP the registry needs to be modified otherwise limited users don't have access to the spelling and grammar
see this link
http://support.microsoft.com/default.aspx?scid=kb;EN-US;257643

also some of the permissions of folders in the office programs directory need to be upgraded to write for all users