I don't know what I did, obviously pressed some kind of sticky key combo, but no matter what I typed it came out as upper case. I could toggle my caps lock on and off and to all intents and purposes when it was off it looked off, that is the light went off. But I still typed in caps. I tried toggling the shift key, which should give me lower case when my caps lock is on. But that didn't work either.
The solution is astoundingly simple:
Start, All Programs, Accessories, Ease of Access (or Accessibility in WinXP), On-Screen Keyboard. Click the Caps Lock key on the on screen keyboard.
Job done.
I'm sure I had a different solution for WinXP but this one worked for me today on Windows 7.
UPDATE: This did not fix the problem within Word. It seems I inadvertently hit Ctrl+F3 whilst trying to adjust the brightness on my screen. This key combo shifts the case between upper, lower and sentence. To resolve just toggle Ctrl+F3 until you get the case you want.