What version of Word is this?
Word is supposed to create an AutoRecover version after x minutes passes
since the last save. Each time you save, any existing AutoRecover version is
deleted, and the counter restarts.
Set the AutoRecover interval to the shortest period possible: 1 minute.
Create a new document and type some text into it. Start your stopwatch, and
wait a minute. Then use Windows Explorer to check the AutoRecover files
location. Is there a file there? You should see names like "AutoRecovery
save of Document1.asd".
I don't think these count as hidden or system files... but you might set
Windows Explorer to display such files to be sure.
If, after all this, you determine that the files really aren't being
created, the problem might be a corrupt Data key in the registry. See the
following article for how to delete the Data key:
http://word.mvps.org/FAQs/AppErrors/ProbsOpeningWord.htm
Hope this helps...