No, InfoPath is not meant to replace Word or Word templates. InfoPath is
meant to replace paper-based forms. While you could create forms in Word,
InfoPath offers you a way to rapidly (faster than in any other Microsoft
product) to put together a form containing fields in a rich user interface
with validation and all.
While you could use InfoPath for what you want to use it (you could develop
an entire application around one form), it is not meant to be used that way,
so I would not recommend it.
I haven't taken a look at Word 2007 closely enough to know enough about it,
but I think you can create your own menus by extending the Ribbon. Try
posting your question in the Word newsgroup about this.