You cannot insert a PDF form created using LiveCycle Designer (i.e. an XFA Form) into a pre-existing PDF. You either have to create the whole document as an XFA Form or create the form using Acrobat. Another option would be to include your XFA form as a file attachment to your PDF or create a PDF package. Either of these last two options can be done using Adobe Acrobat.
1) The option of creating the whole thing as a LiveCycle form means that you need to convert the Word document using LiveCycle Designer. The import utility won't preserve the fidelity of the Word document the way printing to the PDF print driver does. It will likely require a fair bit of tweaking in Designer to get it looking like you want. You will likely get frustrated, since Designer is not a word processor.
2) You can create PDF forms in Acrobat without launching LiveCycle Designer. While they look the same to a user as forms created with LiveCycle Designer, behind the scenes they are very different. When you create a form in Acrobat you overlay fields on top of an existing PDF document that you had previously created using the PDF print driver. There is an extensive scripting model for these "Acroforms". The technology pre-dates LiveCycle yet Adobe continues to improve the two forms models in parallel. In Acrobat, open a PDF and select tools-->forms-->show forms toolbar.
3) I recommend this option if it's feasible. I don't know what you mean by "doesn't show up in a flow". If you're going to use the form in Acrobat 7, then save it as Acrobat 7 compatible in LiveCycle Designer. This is one of the options in the Save As dialog of LiveCycle Designer.