No, you don't need the converter if you have Office 2008. Just open and Save As... into an Office 2004-compatible format (.doc, .rtf, etc). The converter is only intended to provide forwards-compatibility to Office 2004, to allow it to "open" (ie: convert to something else, then open the something-else) files in the newer formats (.docx, .xlsx, .pptx).
As far as install failures go, firstly, if you get a failure, either restart your computer or remove any com.apple.installer*, com.microsoft.*, or "Applications" items from /tmp/. Rename them if you're not comfortable fully removing them (Microsoft has custom-hacked the installer package to all hell, as they set up a bunch of symlinks to the Office 2008 files in /tmp and then operate via the symlinks instead of the actual files/folder). The Installer creates them as temp junk as part of attempting to run the updater, and if it finds them still there due to a failure, it'll just keep failing, even if the cause of the original failure has gone away.
Generally, auto-updaters are good in theory, but will either work properly or not at all. That is, if you try to use the auto-updater and it fails, don't keep retrying. It's probably not going to go any better second or subsequent times. Save yourself the frustration, time and data and go straight to plan B: the manual download. Personally, I don't even bother with the auto-updater. Too much can go wrong too easily, and it adds an unnecessary layer of complexity for limited benefit (when updates like this come out, the entire Internet knows through news/blog sites within 24 hours, so it's not like you'll miss out on anything). I always download by hand, then install (although that could also be because I need to reuse the same updater on 500 computers), and I rarely get failures.
It may also help to repair permissions beforehand. Normally, people repairing permissions before installs are basically wasting their time, since generally the problems arise as a result of poorly configured permissions set by the installer, not out of permissions that are already set, but again, Microsoft does things differently, with a long string of somewhat paranoid checks and rechecks before the installer will do anything at all (that's why the spinning pinwheel takes ages to find your target disk).
Additionally, put Office 2008 back where it belongs: "Microsoft Office 2008" in the top-level Applications folder, with the individual apps named "Microsoft Entourage.app", etc. Renaming app names is idiotic. We're heading towards 10 years of Mac OS X, and it's time you stopped treating it like System 7.
It may also help to remove any receipts for 12.1.1 to 12.2.1 from /Library/Receipts. The 12.2.3 updater only requires 12.1, not any intermediate version.
Lastly, take a look in /var/log/install.log and /var/log/system.log. The reason will usually be in there. The installer is convoluted and unnecessarily complicated, but it does log reasonably well. I pumped out the updaters to 3 machines via ARD but they failed to transfer properly, and when the installer tried to run the incomplete installers, they obviously promptly failed. My subsequent attempts to hand-install failed and I couldn't figure out why. About 2 minutes after cracking open the log files, I found the problem mentioned in the log: the remnants of the first attempt that were left in /tmp. Cleared, retried, success.
