It does indeed work (as well as it can). You will need to use the "paste from Word" button, though, so TinyMCE can filter any of the extraneous markup that Word adds to its content. You'll also have to make sure the paste
plugin (which is part of the the default install) is loaded.
I believe that you'll need to explicitly add the button in your theme, though. Take a look at this example from the TinyMCE wiki.
plugins : "paste",
theme_advanced_buttons3_add : "pastetext,pasteword,selectall",
will add the plugin and button (to whichever row you'd like). The TinyMCE wiki claims paste does Word filtering by default, but I've never seen it work in the wild without explicitly using the "paste from Word" button.
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