This linked object problem must go beyond a Word problem

I don't know if I'm not explaining the issue well or if it is just baffling
everyone. I'm going to give it a whirl here....
- I just started using a new computer. I have WindowsXP and Word 2003.
- Our office uses a file managment software through which we merge
documents. the documents contain links to other documents that we use to
insert letterhead, and atty info that will go into about 500 template
documents.
- when I start documents on this computer that have that link, and tell it
to update the link, the link is inserted and the properties show it as a
..pic. The link works, except it inserts in a box that takes up a whole page
instead of the small space that it is in the original. When I try to adjust
the size of the box, the text inside shrinks.
- This is not happening on any other computer in our office, even if I login
with my personal preferences.
- for the record...to create the link, I choose "insert" from the toolbar,
"objects", create from file, "filename" Link to file.

Is there some setting in Windows that I'm missing? I haven't tried this with
any other programs. I don't use others very often. I think I've looked at
every option that might be relevant in the word tools and options. I can't
find anything that makes this better.

one final note...I'm a former die-hard Wordperfect user, and am relatively
new to Word so I'm lost on macros and codes and such.

I'm so frustrated. I can use these documents, but I have to copy the text
from the file and paste it, but it isn't linked.