Prompting is simple in OpenOffice once you have done it a few times. Go to Insert -> Fields -> Other..., then choose the Functions tab in the Fields dialogue box. Click on Input field under Type, and fill in your prompting text under Reference. When you click Insert, OpenOffice will bring up a sample dialog box and you can enter default text if you wish. Click OK, then click Close on the Fields box. You will have a grey square representing your field (unless you select View -> Field Names). Save this document as a template (it won't work if it is saved as a regular document), and the next time you open it, it will automatically pop up a Fields dialogue box for each input field.
If you use these on a regular basis, I would suggest adding one item to your edit menu. Go to Tools -> Customize..., select the Edit menu at the top, and click on Add under Menu Content. In the Edit category is the Command "Update Input Fields". This will allow you to bring up all the input fields again without closing and re-opening the template - useful if you have several of the same letter to print.
Templates can fetch data from a database just like regular documents. See my article at http://www.freesoftwaremagazine.com/articles/mail_merge_openoffice_org. As I say in the article, I would suggest just printing the template rather than using the Mail Merge Wizard. This will give you a chance to select one or more contacts in your database for filling in the database fields.