I don't know about Publisher files (I don't know if Open Office has a comparable module to Publisher), but Wine doesn't use a file to act as your C drive, it just uses the .wine directory under /home. So it will have as much space as your home partition has.
I am not sure what would cause that specific error, but programs under Wine tend to be a little twitchy in general. You might want to check the
Wine HQ AppDB entry for MS Office, as it should have some tips to get everything running (more or less...).
P.S.
Are you running the latest Wine? The Wine HQ front page says that one of the recent updates fixed issues in the Office 2007 installer.