Here's the scenario: we have a bunch of contract documents that are in
Word. I've put them in a document library, one doc library per vendor.
There are two content types: Contract and Contract Modification.

Fine and dandy. I can create views with grouped documents by content
type and show specific metadata to help make it easier to find
documents using the views. We can search the document library and
scope the search to show only certain content types.

However, we also want to do something like this: When doing a search
for a specific term, the search pops up with results that point the
user to the exact point in each Word doc or web page where the term
exists.

As far as I know, the standard MOSS search does not have a way to do
this. Or am I missing something?