Running Vista SP1/Office 2007 and using Windows Mail. Clicked the Word attachment in Windows Mail, the native app was invoked (Word 2007) and I began modifying the Word doc. I used "control-s" multiple times while working, but closed the doc in error using the X. According to Microsoft, the document should have beeen saved in the Documents folder, but it was not. There was an earlier version there of the same name, but not the one I just modified. I could find nothing in Temp, and the doc in Mail was the original as well.

Where is my modified version hiding? Or, is it gone forever?

Unfortunately, your document is probably gone.
If you select to open the document in an email program when happens is the document is copied to a temp folder, opened and when closed the file is either deleted or soon going to be.
If make changes and want to save them you need to use the save as command first in Word to save it to a location when it won't be removed or use the save option in the email program to save somewhere and then edit it.
From what I can tell the temp location Windows Mail uses is the Temporary Internet Files folder and any new files from web sites or emails will replace the old ones within the limit of 50 MB.