A family of Microsoft word processing software products for creating web, email, and print documents.
The diagnostic tools can't detect anything when it comes to the citation and bibliography tools. They can't even detect if they aren't installed correctly. If you can't find a solution you should uninstall and reinstall the entire packet.
Now, if you see "Invalid source specified" this means that either there really is no source, or that the output of the 'formatting' engine returned something invalid.
To check whether the problem is not with the source, place your cursor on "Invalid source specified" , right click, and choose "Edit field". In the dialog, there will be a string looking like "CITATION DHO11 \l 1033". The "DHO11" is the tag of the source you are using. Write it down and close the dialog. Click the "Manage Sources" button on the ribbon. In the dropdown next to the Search box, select "Sort by Tag". Check that the tag you wrote down earlier is in the list. If it isn't, then you are trying to use a source which doesn't exist. It is unlikely that this is the case, but verify it anyway.
Check if the styles are available. In Windows explorer look for "winword.exe". Commonly the file is located at "c:\program files\microsoft office\office12\winword.exe". In the folder where "winword.exe" is located, there should be a subfolder named "bibliography". Inside that folder, there should be another folder named "Style". Check that folder. There should be several XSL files there including APA.XSL and Chicago.XSL. If they aren't there, then your installation failed and you should uninstall the product and try to install it again.
In Word, try using another style. For example, if you were using APA, try Chicago. If it works with another style, then the specific style you are using is corrupt. Try to get a replacement XSL from another machine. If not possible, uninstall everything and try a reinstall.