Yes, you could potentially set up a dual-boot, therefore preserving your Word installation. However, it would be quite a pain to reboot into another OS every time you wanted to do some word processing. You would likely end up spending more time using XP instead of Windows 7. (By the way, you don't need another hard drive to have a dual-boot, you can just partition off for it...either option is viable, I'm just saying a new hard drive isn't the only way to do it)
Yes, Open Office is out there, but personally, I don't like it (although, you may like it...some people do).
Regardless of where you buy Office from, the price will still be between $100 and $150 (unless you use eBay). Any retail store (or campus bookstore) is probably going to have it for $100. There is the Microsoft Ultimate Steal
, as well.
I still think your best option would be to use the 2010 Beta until you can get your disk. Don't worry about it being a "beta", if the term scares you off. They just call it that because it is not officially released as a retail version yet. Yes, it will expire in October, but at least that gives you plenty of time to get your install disk.
What you do is fully up to you, I just give my opinion as to what I think is your best option.