After ten years of practically no changes in the mail merge interface, Microsoft looked at the functionality for Word 2002 and decided changes were due. While the intensions were good, not all the changes have been for the better. And many are extremely confusing, especially to users familiar with Mail merge in earlier versions.
Also, a number of important requests were not addressed. Do not look for Word 2002 to handle one-to-many merges any better, or to be able to merge pictures or other formatted or binary information from a data source that is not a Word table. It's still not possible to attach files to merged emails, nor specify a different subject for each recipient, nor to send copies.
Problems with Word 2002 and the mail merge interface are being corrected continually. Be sure you've updated to the newest Service Pack, available in the downloads section of microsoft.com.
The information in this set of page addresses frequently asked questions about Mail merge in Word 2002, and important issues that may not be readily apparent.