You are able to modify a secure linked document object without using a password in Word

If your Microsoft Word document contains a password in the Password to modify box, and you insert the document into another Word document as a linked object, you may be able to make changes to the original document without typing the password.

When you edit the linked document and then save it, you do not receive a warning that the linked document contains a password to modify, and you are not prompted for the password.

To work around this issue, save the linked document, and then type a password in the Password to open box. To do this, follow these steps.

Microsoft Office Word 2007

1. Click the Microsoft Office Button, and then click Save As.
2. On the Tools menu, click General Options.
3. In the Password to open box, type a password, and then click OK.
4. In the Confirm Password dialog box, reenter the password in the Reenter password to open box, and then click OK.

Word 2003 and Word 2002

1. Open the document.
2. On the File menu, click Save As.
3. On the Tools menu, click Security Options in the upper-right corner of the Save As dialog box.
4. Type a password in the Password to open box, and then click OK.
5. In the Confirm Password dialog box, reenter the password in the Reenter password to open box, and then click OK.

Microsoft has confirmed that this is a problem in the Microsoft products that are listed in the "Applies to" section.