This issue has not occured for me on WinXP PRO/Word 2003 or Win7 Home Premium / Word 2007; only with Win7 PRO and Word 2007 after updating to X2.0.4 (Build 4459).
After this upgrade I could still insert a reference but I could not edit it using the button I had added on the Quick Access Toolbar due to “Invalid class string.”
The suggested fix at http://www.endnote.com/support/faqs/CWYW/faq13.asp did not work.
After several fruitless hours uninstalling Endnote, setting my account as Administrator, then re-installing Endnote and updating to X2.0.4 - it still did not work.
However, by accident I found that if I used the Edit Citation button on the Endnote 2 tab - it worked!!!
The solution was to remove the button I had added to the Quick Access bar, and re-add it.