In SharePoint 2007, we have the choice of using _layouts folder for deploying document templates that are used in content types. That option still exists in SharePoint 2010 for farm based solutions, but the SharePoint Root (14 hive) is not accessible in Sandboxed solutions and hence it is not possible to deploy the document templates in _layouts folder. You will need to include the document template within SharePoint, meaning it will be stored in the content database.
The following TechNet How-To topic discusses how to deploy document template in a sandboxed solution – What it doesn’t tell you is how to handle document template files for content types and how do we handle very special cases, such as document template files deployed to a site collections with managed path (e.g., http://webapp/sites/mysite)
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