It is a known fact that MS Outlook 2007 does not support DHTML tags (which used to create HTML output file) anymore.
In old versions, Outlook used two rendering engines - IE’s for reading content, and Word for composing messages.
And now it looks like they decided to use only one rendering engine - Word, which does not support DHTML tags

In this case you will need to send HTML output as an attachment, not as a message body.