Typically, most software is backwards compatible - for example, Office 2003 would open files created in older versions of Office. However, most software is not forward compatible - for example, Office 2003 will not open Office 2007 format.
Microsoft has created a free compatibility pack that allows older versions of Office (2000, XP, or 2003) to open files created in Office 2007.
I find that students are starting to submit some files in this format, so I've installed this on all the machines I use.
Link to Microsoft's download for the Compatibility Pack