As for the file formats, they are different, but if you choose to stick with Office 2003, you can download and install the Office Compatibility Pack. As for Windows Update within Vista, there will be absolutely no problems with Office 2003.
I have just bought a new Dell Studio laptop, which comes with MS Office 2007 pre-installed as a trial product. My home network consists of three XP systems, (one with MS Office, two with Works) and three Vista Systems, one with StarOffice,one with MS Office( 2003), and the new one, which currently has none. I have a version of MS Office 2003 Student Edition which I am entitled to install. I assume I'd have to pay for a 2007 install key, although I am still entitiled to use the Student Edition, so it might not be a lot. What is the down side of de-installing the bundled 2007 package and installing the licensed copy of 2003? What is the down side of buying a new key and installing 2007 version?  
Revert to Office 2003, or pay the 2007 licence fee