This bug was fixed in Outlook 2010 in the July 2011 hotfix.
Beginning with Outlook 2007 SP2 (and continuing in Outlook 2010), there is a bug in the rules engine which causes reply with template rules to fail.
I was hoping for a hotfix when I saw a newly released KB article referring to "Rules in Error". Outlook 2007 SP2 introduced a bug (which remains in Outlook 2010) in the Rules wizard process: when you reply to a message with a template, the rule errors. Unfortunately, the work around doesn't seem to work. In my tests, the error occurs whether you use Run Rules Now or automatically run the rules as messages arrive.
Until an update is released that addresses the problem, you'll need to use a plain text template, not HTML.
Some people have had success using HTML templates running the rule manually the first time. It hasn't worked for me, so your mileage may vary.
Rules in Error - "Cannot reply to message" error when you use Run Rules Now (MSKB)
Diane why didn't you resolve the issues?
What is the issue? I probably don't have a resolution or haven't had time to do it (usually when code samples are needed) or I'm just so swamped with comments looking for answers that I can't get through all.
I am unfortunately already using plain text format, reading from an oft file. It does not work!
What version of Outlook? Do you have all updates installed?
I have the same problem. My answers to your questions are yes and yes.