Update 8/15, SamV: I am adding these comments here for any other developer that may face similar issue
Just to recap, the problem was in a PB object that did OLE to Word to open templates with bookmarks to generate reports. I kept getting error on FileExists and FileOpen functions in PB. This used to work in PB 10/Windows XP.
The problem turned out to be Microsoft office (2010) security model. By default office does not allow network access, if you are logged in as Administrator (part of UAC). We developers are and thus we had issues. The users were able to access those files fine.
The template files were all there on the network drive, but the word security prevented from opening the file. Even after adding the access, the template files were (silently) opened in protected mode thus causing our PB program to still fail to create new report files from the template. After we tweaked those settings, things are working now.
I ended up in adding Word Security templates in Group policy to allow network file access, opening up of old version of Word templates etc. (The settings are the same as you would see in Word Properties, but the users are not allowed to change it, so we have to apply the templates in Group Policy editor). To make these changes, you need to download an install Administrative Templates. Then open Group Policy editor and add the template in to make the tweaks to security settings. Here are some useful links about office security templates:
http://technet.microsoft.com/en-us/library/cc179081%28v=office.14%29.aspx
http://technet.microsoft.com/en-us/library/cc179039%28v=office.15%29.aspx
Thanks for all that responded.