When you click the address icon next to the To field, no contacts show up. However, if you switch views to the Contacts view in the navigation bar on the left, the contacts display.
Check the address dialog pop-up for the To field. It probably says "Personal Address Book". This means that the Contacts file in use is a PAB not an Outlook one.
It is possible to have a main Outlook Address Book and multiple additional personal address books. However, we have seen some cases where instead of the PAB being an additional address book, it becomes the only option instead. (Appears to be some kind of bad bug in Outlook 2003 and 2007.) Click the drop-down and see if the Outlook Address Book is an option. If it is, switch to it, you'll be able to see that Address Book's contacts and distribution groups/lists. If not, it is functioning as designed, Microsoft didn't code Outlook to support addressing from a PAB. You need to kill the PAB if you want addressing from the memo.
If you only have the PAB option, you were probably a restore/migration from another PC or an upgrade and someone was trying to load the PAB as a secondary address book.
1. Delete the PAB using the "email settings" wizard. In the wizard, choose the option to add/change address books. Remove the current PAB.
2. Exit Outlook.
3. Start Outlook
You should still have a Contacts option in the Navigation. This should be your actual Outlook Address Book. You may or may not have your contacts and lists. Add one a contact if it's empty just for testing. Now create a memo and see if the To field addressing works, it should.
If your Outlook Address Book's contacts view is empty, you will need to import/copy the contacts from the PAB to your Outlook Address Book.
There is also an option for the Outlook Address Book while looking at it's properties. It has the option "Show this folder as an e-mail address book". It is possible for users to accidentally clear this checkbox. When they do that, addressing doesn't work for an Outlook Address Book either. In this case, simply check the box again and restart Outlook.