You are right on target with you're thinking. Allowing them to edit the Word Doc is the only good way to allow them to make the changes... I encountered the exact same issue and that was the end result. I was fortunate in the fact that the end result only needed to be printed.

Rather than allow them to upload back to the server you may want to investigate putting a PDF print driver on the client machine (that may not be practicle if the user base is going to be large). However, I'm not for sure how you would go from Word back to PDF once you got it on the server... Unless there is a good Word to PDF component you could use.