After one and a half hours on the phone to Microsoft last week, and two and a half hours yesterday, I have finally sorted it
Believe it or not the problem is caused by 'Skype Click to Call'. I don't know if Skype are aware of this conflict yet. In fact the guy from Microsoft had to do some serious digging to find out. But removing click to call seems to have done the trick. Apparently it conflicts with the clipboard in word and excel.