As you may know, Office 2007 makes use of the Updates folder in the installation media to install any new updates that it finds in the folder however the updates need to be in the .msp file format for them to be recognized. Since the Office 2007 SP1 update file is delivered in the .exe format, an extra step is required before being able to proceed:

First, you should copy the contents of the Office 2007 RTM image to a temporary folder. For our example we're using C:\O2007Temp\. We have also copied the Office 2007 SP1 Update file (office2007sp1-kb936982-fullfile-en-us.exe) to the D:\ drive.

Then, using the Run command in Windows XP/Vista (WinKey+R), run the following command:

D:\office2007sp1-kb936982-fullfile-en-us.exe /extract:C:\O2007Temp\Updates\

replacing D:\ with wherever you stored the Office 2007 SP1 update file and C:\O2007Temp\ with wherever you stored the Office 2007 RTM files. After agreeing to the Microsoft Software License Terms, SP1 will be extracted to C:\O2007Temp\Updates\.

That's it! Just start the setup for Office 2007 and the updates for SP1 will then be picked up and installed during the setup. The same method applies to any other Office 2007 SP1 update.