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topher
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nink
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Jerz
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I think it depends more on the online application system rather than which version of office the school uses. I seem to remember a few applications last year where the system wouldn't accept an Office 2007 document. The instructions in the application should say whether this is an issue or not.

I'm pretty sure adcom (at least at Kellogg) reviews the application in hard copy, so I wouldn't worry about the Word spell check underline deal.
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unhedged
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Another vote for PDF, because it seems most app systems are converting to PDF after uploading anyways. I'd still do it to make sure it looks right in that format.
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kokkiri
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I also did mine in PDF. I always trust PDF more than the original doc files.
No worries about a reader pressing a wrong key and create a typo, etc.
I know I'm paranoid about all sorts of situations....
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Personally I always do 2003. .doc is just easier to access by more people. PDF is nice, but some systems won't accept PDF files.