None of the helpful guidance for this message from Microsoft Word pointed out that the underlying problem is that "Automatic Update" is turned on on various of the style elements in the template, so e.g. changing a bulleted list to a numeric list changes all of the lists in the entire document, but also numbering mysteriously fails to reset. Quite why anyone would do such a thing is a mystery to me, but the fix for Word 2007 is:
- On the Home ribbon, click the down-right arrow below the Styles section.
- Click the "Manage Styles" button (third button at the button of the frame).
- Change "Sort order" to Alphabetical
- For each style whose name starts with List:
- Click the style name.
- Click the Modify button.
- If the "Modify Style" dialog has "Automatically update" checked (near the bottom of the dialog, beside "Add to Quick Style list"), uncheck it and click OK.
- Otherwise click Cancel.
- Click OK.
Lists should now work correctly.