Handling figures is the thing Word sucks most at, and I still don't know a good way to work around it. All the other aspects of managing a thesis/dissertation are doable with Word though. Auto-generated TOCs that update, sections and chapters, etc.
goobster is right about Word: you have to fight on its turf. The features are there, but not necessarily in the way or place you expect them to be, but they are for the most part there.