[PaulHoule]

I don't know if the format is as bad as you think.

A DOCX file is just a ZIP file which has XML, PNG, JPG, etc. files in it.

In principle you could unpack the ZIP, manage the directory with conventional VC tools, then repack the ZIP to open it in word. At that point it's mainly an issue of managing changes in the XML, which may or may not be easy based on how stable the XML is (does it change in huge ways for no reason?); "track changes" data could also be helpful for locating exactly what changed and merging it.

Neat looking product!